











0^ 






^'^^f^.-. "^ ^ 






^0 O. 









'.;^- 



* 












' >. '-t^^^- 



.0 







t 



:V^ S. 






^Mi- ' 






o 0' 
<5 -n*.. 



'^^ "^ 






o^^ * , ^ „ ^ ^^^ 









J -7-, >- ^■ 



A. V ^ 



'j ,<,o 



^'''.v.?^''-''^ 



^z. V^ 



.<■■ 



^' ^^ .,. 







O^ ^> 



' >, -^-t 







*^ 



"^^ v^^ 












^^ iy 



> "^ .O^ 






^^'^^. 






.:^ "M§ 



■^ ^ 









.,V' 






# 

:^^ %. 



-^t^. 







3 ", ^^v .A^<' 









oo 



o,^' 



c^, 



^--^ *"^'^ n^ s^-'."-^. 







^ o^ 



■^^" ^4; 



~ -<^^ 






^X 






>^ -%- 



'V 






'^^ .# 

,-,^^ 












.0^ 






>J c . ^o 






.0 o 



^ -^ '^ 






...0 ^. 






. ^ .^^ ^ 












r^- 



/ „ . -» .iV 



HISTOEY OF 
POLITICAL ECONOMY 



Ail rigkU reset ve4> 



A HISTORY 



OF 



POLITICAL ECONOMY 



BY 

JOHN KELLS INGRAM, LL.D. 

FELLOW OF TRINITY COLLEGE, DUBLIN 



mitl) IPreface bg 
PROF. E. J. JAMES, Ph.D. 

UNIVERSITY OF PENNSYLVANIA 



^m Work : 
THE MACMILLAN COMPANY. 

1897. 









51564 



Copyright, 1887, 

BY 

GEORGE W. DILLAWAY. 



Press of J. J. Little & Co, 
Astor Place, New York. 



PEEFACE. 



It is with great pleasure that I emhrace the opportnuity 
afforded me by the publishers of Dr. Ingram's "History of 
Political Economy '' to commend the book to the attention of 
the American public. Dr. Ingram needs no introduction to 
our students of economics. His work in the Encyclopaedia 
Britannica has attracted marked attention wherever earnest 
thinkers are studying the social and economic problems of our 
time, whether in Europe or America. The present treatise 
deserves especial notice, as the first serious attempt by a pro- 
perly qualified English writer to present a view of the progress 
of economic thought. The works of M'Culloch and Twiss 
on the same subject were of value only because there was 
nothing else on the same topic. They testify eloquently to 
the exceedingly primitive state of the history of economic 
thought and policy which existed in their day. The work 
of Blanqui, recently translated into English, is rather a 
history of economic systems (and a poor one even as such) 
than of economic theories and doctrines. Up to the time of 
the appearance of the nineteenth volume of the Encyclopaedia 
Britannica tliere was no essay on the subject in English 
whicli could be considered a very valuable one. We now 
have a treatise which will compare favourably with any work 
of similar compass in any other language. 



vi PREFACE. 

It seems appropriate in this connection to emphasise briefly 
the importance of this service to our American schools and 
colleges. In no country, except possibly France, has there 
been such pure and unadulterated teaching of dogma in the 
realm of economics as in America. The teaching of this 
subject has been largely in the hands of clergymen or other 
people whose specialties, so far as they have had any, have 
lain in other directions. When called upon to teach the 
subject they have ordinarily taken some standard text-book 
and taught it verhatim et literal rm, adhering to the lette'-: in 
a manner which would have tseamed ridiculous even to the 
authors of the books, though they were oftentimes dogmatic 
enough themselves. 

The result w^as, of course, not merely superficiality, but an 
extreme form of doctrinaireism and a priori-ism. which even 
yet dominates to a large extent the public mind so far as this 
troubles itself with economic principles at all. The great phe-- 
nomena of our modern industrial life do not allow themselves 
to be subsumed under any such simple economic forms. The 
result has been that in the case of those who really thought 
about the subject at all, and who tried to bring their practical 
ideas into harmony wiih the economic teaching which they 
liad received, the sentiment took strong hold and found 
frequent expression that it is all very w^ell to propound econo-; 
mic doctrines, and they may be true in theory, but they will 
nol work in practice. In the case of those who did not think 
of the matter at all there would be found the grossest incon- 
sistency between their professed economic doctrines and their 
actual views of public policy and economic plienomena. 

A change has recently taken place in the spirit and methods 
of teaching the subject, so that now there is scarcely a leading 
centre of college or university instruction in which the old 



PREFACE. Vii 

plan has not been considerably modified. This is a change 
in the right direction, I believe, and whatever will hasten its 
progress deserves serious attention. To this end nothing will 
contribute more tlian a study of the history of the rise and 
developnient of economic systems and economic thought. A 
thoughtful study of the history of investigation and theories 
has valuable results in any branch of human learning, but above 
ail in the field of moral, philosophical, and social science. 

The first lesson borne in upon the serious student of eco- 
nomic systems and economic thought is the essential relativity 
of eccmomic theories, at least of all such as have been hitherto 
propounded. The dogmatist in the field of economics, the man 
who never le^irned anything from history, regards the whole 
past development of politics and theories as did Say, wlio 
looked upon the history of the science as a record of absurd 
and justly exploded opinions. But the man who studies them 
carefully in order to find out what measure of truth was in 
each form which prevailed and exercised a wide influence 
finds the conviction gradually borne in upon him that econo- 
mic systems and theories change with every great change in 
industry and in man. The axioms and theorems which apply 
to one form of society may have little or no application in 
another form, and any attempt to make such application may 
result in the most absurd conclusions. An explanation of the 
j)henomena of industrial life in such a community as ancient 
Home or mediaeval Europe will not serve as an explanation of 
the life of to-day. Nor will a theory which is adequate to the 
demands of an industrial state like England or America suit 
such a country as India or Africa. It is not, therefore, a 
science in which the laws and principles may be safely compared 
with the laws and prii:ci])les of physics and chemistry, which, 
so far as we know, are true in all times and places. In other 



?iii PREFACE. 

irords, the science of economics must be relative and progresh 
fiive, because the phenomena which form its subject-matter are 
changing all the time, not merely from age to age, but from 
country to country.^ 

The view, therefore, expressed by Colonel Torrens over sixty 
years ago is, at least in the sense in which he was think- 
ing of it, an erroneous one. He wrote as follows : — " In the 
progress of the human mind a period of controversy amongst 
the cultivators of any branch of science must necessarily 
precede the period of unanimity. With respect to Political 
Economy, the period of controversy is passing away, and that 
of unanimity is rapidly approaching. Twenty years hence 
there will scarcely be a doubt respecting any of its funda- 
mental principles." Mill, writing twenty years later, thought 
to formulate those principles on which everybody agreed, and 
believed confidently that on several topics, like that of value, 
for example, the last word had been spoken. Travers Twiss, 
in his lectures at Oxford in 1846, said that, while it was true 
that the simplest doctrines of the science were vigorously con- 
troverted during the earlier part of the century, yet all the 
great principles are now readily acquiesced in ; and he proposed 
to show how this had been accomplished. His attitude was 
significant. He proposed not to show the modicum of truth 
which lay in each of the great systems of economic policy and 
theory, but how they were all false, and how they had been 
gradually superseded by the pure and unadulterated system of 
truth as it existed in his day. 

Less than fifteen years after Twiss had written these words 
we find Professor Cairnes almost in despair over the prospects 

* The economic laws which may be discovered as the result of a com' 
plete comparative view of human history and development belong, of course 
in a different category, and are described by Dr. Ingram on p. 205. 



PREFACE. ii 

of the science on account of the continued agitation against 
what he is pleased to call its fundamental principles. He 
says in his first lecture delivered before the University of 
Dublin, in commenting upon Torrens' prophecy above quoted : 
— " Five-and-thirty years have passed since that unlucky pro- 
phecy was uttered, and yet sudi questions as those respecting 
the laws of population, of rent, of foreign trade, the eJBfects of 
different kinds of expenditure on distribution, the theory of 
prices — all fundamental in the science — are still unsettled, and 
must still be considered as ' open questions,' if that expression 
may be applied to propositions which are still vehemently 
debated, not merely by sciolists and smatterers who may 
always be expected to wrangle, but by the professed cultivators 
and recognised expounders of the science. So far from the 
period of controversy having passed, it seems hardly yet to 
have begun — controversy, I mean, not merely respecting pro- 
positions of secondary importance or the practical application 
of scientific doctrines (for such controversy is only an evi- 
dence of the vitality of the science, and is a necessary con- 
dition of its progress), but controversy respecting fundamental 
principles which lie at the root of its reasonings, and which 
were regarded as settled when Colonel Torrens wrote." 

In the preface to the published lectures Professor Cairnes 
states it to be his purpose " to bring back the discussions of 
Political Economy to those tests and standards which were 
formerly considered the ultimate criteria of economic doctrine, 
but which have been completely lost sight of in many modern 
publications." Although he thus admits the existence of great 
ditrerence of opinion, yet he also shows that he is a stead- 
fast believer in the ultimate truth of the old formulations, 
and an apologetic tone runs through his remarks, as if he 
needed to justify, to himself at least, his willingness to take 



X PREFACE. 

any notice of a set of men who were so blind as to deny the 
validity of the old system. 

Now, as we have noted above, a study of the history of 
economic systems and economic theories of society in its 
various industrial stages, and of the explanations offered of 
its industrial phenomena by contemporaneous writers, com- 
pletely changes such a mental attitude. The student becomes 
aware that every one of the great systems possessed some 
truth, and no one has been elaborated which contains the 
whole truth. He becomes aware of a still more important 
fact, and that is, that owing to the continual changes in the 
nature of the elements with which he has to deal, no uni- 
versal system, no system which shall be valid in all times 
and places, can at present, if indeed it ever can, be formu- 
lated. We can formulate for our time and country, for our 
type of society and industry, for our race and nation ; but 
such a formulation, even though perfectly correct, would pro- 
bably not hold for any other time or country or type or 
race, though it would, of course, hold true of them to just the 
extent to which they are similar to us and ours. As a result 
of this conviction, when a problem presents itself, the eco- 
nomist does not set out with a firm determination to force it 
at any cost into the old moulds. He recognises that there 
are probably new elements in the case which cannot be 
brought within the old formulas without changing the piob- 
lem to such an extent that its solution would be of no value, 
since it would no longer correspond to the actual problem to 
be solved. On the contrary, he devotes himself to a careful 
study of all the elements in the case, and while seeking help 
from all the solutions of other similar and dissimilar problems 
of other times and countries, recognises that after all the exist- 
ing pi'oblem is a new one, and that any attempt to apply the 



PREFACE. XV 

cut and dried recipes of an a priori system can only result 
in failure. 

Now, it is tliis mental attitude- — a recognition of the value 
of the services of the great thinkers of the past, combined 
with an equally full recognition that they were hut creatures 
of their age, writing and tliinking primarily for their time 
and society, and were circumscribed by the same limitations 
as hedged in their contemporaries in sinular fields — that every 
economic thinker should strive to attain. Only in this way 
can we do justice to the contributions of former thinkers, and 
at the same time keep our minds open for the reception of 
all new truth. 

Of course, there is more or less of this spirit in all the 
great writings on the subject of Political Economy. Mill, in 
particular, deserves praise for admitting to a certain extent 
the validity of the above view, but his knowledge of economic 
history was not sufficient and his "historical sense" was not 
sutT:ciently developed for him to come thoroughly under the 
influence of this truth. In his discussion of the theory of 
Distribution he acknowledged the justness of this conception, 
but failed to carry it into the domain of Production. He thus 
stamped himself as a believer in the existence of *' natural 
laws " in economics in the Ricardian sense of that term. 

In developing this spirit a good text-book written from 
such a point of view is a great aid. We are under special 
obligations, therefore, to Dr. Ingram for the preparation of this 
convenient hand-book. It is believed that its general intro- 
duction into our college and university work would greatly 
stimulate the careful study of economic thought and policy. 

I may be pardoned one word in regard to the so-called 
" New Political Economy." It is perhaps a matter of indif- 
ference whether the change which has recently taken })lace in 



til PREFACE. 

the tendencies and methods of economic thought be dignified 
by a distinctive name or not. The important point is that 
there has been a great change, and that the valuable woik 
in economics for the last twenty years has nearly all been 
done by men who are distinctly under the influence of this 
new spirit, whether they profess themselves as adherents 
of the new school or not. The term '* Historical School*' 
has been employed to distinguish one set of writers and 
thinkers connected with the movement. There is much 
misunderstanding as to what these men have accomplished 
in economics, and as to what they are trying to accomplish* 
Their work is not limited, as many seem to think, to a study 
of former writers on economics. Their object is the same as 
that of previous investigators, viz., to find as far as possible 
the laws underlying the industrial progress of human society. 
They believe, however, that this can be done only by a care- 
ful study of the origin and development of human society on 
its industrial sides. The economic systems best adapted to 
further the industrial interests of society must change Avith 
every great change in social organisation, and with the gradual 
change in the character of man himself which is the result 
of advancing civilisation. It is believed that by a study of the 
economic systems of successful societies a clue may be dis- 
covered to a general law of industrial progress. By disc^overing 
and studying the essential features of many different national 
economies we may finally by comparison deduce (or, if you 
like it better, induce) a general rule of economic development 
which may form the basis of a general political economy. 

Whether this view be just or not — and we must admit, I 
think, that the positive results in this particular direction are 
not all that could be desired, since they have been such as 
to lead some writers to give up any hope of ascertaining 



PREFACE. xiii 

any general laws of economics — yet the negative results have 
been neither few nor unimportant. They have demonstrated 
' eyond a doubt that some of the so-called orthodox views 
as to the *' cosmopolitanism and perpetualism " of the natu- 
ral laws of Political Economy were erroneous. What were 
claimed to be fundamental principles of all economic theory 
have been proved to hold good only in a certain form of 
society — which is to be found only on a very small portion of 
the earth's surface, and not even there, in the purity pre- 
supposed by the premises of this theory. 

This is a real service ; since next to offering a theory which 
will explain additional phenomena is the service which proves 
beyond a doubt that the generally accepted one does not and 
cannot explain known facts; for the result of such demon- 
stration must be a quickened zeal in discovering the true 
doctrine. The work of the so-called Historical School has 
thus far, then, been primarily critical and destructive, though 
it has resulted in bringing to light an enormous amount of 
material, which must be utilised by him who would construct 
anew those places which have been torn down. To under- 
stand their work fully — and this is an essential thing for every 
one who would comprehend the present tendencies in econo- 
mics — a study of the history of economic theory is necessary. 
In this work no better guide is at present attainable for the 
English student than this book of Dr. Ingram's. 



K 3. JAMES. 



University op Pennsylvania, 
Philadelphia. 



BIBLIOGRAPHICAL NOTE. 

..The reader is referred for fuller information to the following 
books on the history of Political Economy, all of which have 
been more or less, and some very largely, used in the prepara- 
tion of the present work : — 

General Histories. — Eistoire de V Economic Politique en Europe 
depuis les anciens jusqu^ d nos jours, by Jerome Adolphe Blan^ui (1837- 
38) ; of which there is an Englit^h translation by Emily J. Leonard 
(1880). Histoire de V£conoime Politique, by Alban de Villeneuve- 
Bargeinont (Brussels, 1839; Paris, 1841); written from the Catholic 
point of view. Vieio of the Progress of Political Economy in Europe since 
the Sixteenth Ct ntury, by Travers Twiss, D. C. L. ( 1847). Die geschichtliche 
E?itivicktiu7ig der National-Oekonoiaik und Hirer Literatar, by Julius 
Kautz (2d eJ. i860) ; a valuable work marked by philo.-^jophical breadth, 
and exliibiting the results of extensive research, but too declamatory in 
style ; the book sadly wants an index. Kritische Geschichte der National- 
ol'unomie und der Socialismus, by Emile Duhring (187 1 ; 3d ed. 1879) ; 
characterised by its author's usual sagacity, but also by his usual per- 
versencss and depreciation of meritorious writers in his own field. Guida 
alio studio delV Economia Politico, by Luigi Cossa (1S76 and 1S7S ; Eng. 
trans. 1 880). Geschichte der Nationalokonomik, by H. Eis^nhart (18S1); 
A vigorous and original sketch. And, lastly, a brief but excellent history 
by H. vun Scheel in the Handbuch der poLitischen Oelconomie (a great 
encyclopaedia of economic knowledge in all its extent and applications) ; 
edited by Gustav Schonberg (1882 ; 2d ed., enlarged and improved, 1886). 
To these histories proper must be added The Literature of Political 
Economy, by J. R. M^nlloch (1845), a book which might with advantage 
be re-edited, supplemented where imperfect, and continued to our own 
time. Some of the biographical and critical notices by Eugene Daire 
and others in the Collection des principaux J^conomistes will also be found 
useful, as well as the articles in the Dictionnaire de V Economic PolitiqiH 
of Coqaelin and Guillaumin (1S52-53 ; 3d ed. 1864), which is justly 
described by Jevons as "on the whole, the best work of reference in the 
literature of the science." 

Special Histories. — Italy. — Storia della Economia Puhhlica in Italia^ 
ossia Epilogo critico degli Economisti Jtaliani, by Count Giuseppe Pecchio 



BIBLIOGRAPHICAL NOTE. xv 

(1829), intended as an appendix to Baron Custodi's collection of the 
Scrittori classici Italiani di Economia Politica, 50 vols., comprising the 
writings of Italian economists from 1 582 to 1804, There is a French 
translation of Pecchio's work by Leonard Gallois (1830). The book ia 
not without value, though often superficial and rhetorical. 

Spain. — Storia delta Economia Politica in Espafia (1863), by M. 
Colmeiro ; rather a history of economy than of economics — of policies 
and institutions rather than of theories and literary works. 

Germany. — Geschirhte der Nationcdohonomik in Deutschland (1874), by 
Wilhelm Roscher ; a vast repertory of learning on its subject, with occa- 
sional side-glances at other economic literatures. Die neuere National- 
okoiiomie in ihren Hauptrichttingen, by Moritz Meyer (3d ed. 1882); a 
useful handbook dealing almost exclusively with recent German specula- 
tion and policy. 

England. — Zur Geschichte der Englischen VoUcsmrthschaftslehre, by W. 
Roscher (1851-52). 

The reader is also advised to consult the articles of the Encyclopaedia 
Britannica, ninth edition, which relate to the principal writers on 
political economy, especially those on Petty, Quesnay, Turgot, Smith, 
Say, and Ricardo. The present work, it should be stated, is for the most 
part a reproduction of the article " Political Economy," which appeared 
(1885) in vol xix. of the Encyclopaf^dia Britannica. 

J. K.L 



CONTENTS. 



PAGE 

Preface v 

Bibliographical Note xiv 

Chap. I. Introductory 1 

" II. Ancient Times 7 

^' III. The Middle Ages 24 

'' IV. Modern Times : Two First Phases ... 32 

'* V. Third Modern Phase : System of Natural 

Liberty 55 

"' VI. The Historical School * . . . . 196 

"• VII. Conclusion 240 

Index 247 



OUTLINES 



OF THE 



HISTORY OF POLITICAL ECONOMY. 



CHAPTER I. 

INTRODUCTORY. 

In the present condition of Political Economy, tlie production 
of new dogmatic treatises on the subject does not appear to bo 
opportune. There are many works, accessible to every one, 
in which, with more or less of variation in details, what 
is known as the "orthodox" or '' classical" system is ex- 
pounded. But there exists in England and other countries wide- 
spread dissatisfaction with that system, and much difference 
of opinion with respect both to the method and the doctrines 
of Economic Science. There is, in fact, good reason to 
believe that this department of social theory has entered on 
a transition stage, and is destined ere long to undergo a con- 
siderable transformation. But the new body of thought 
which will replace, or at leas^ profoundly modify, the old, 
has not yet been fully elaborated. The attitude of mind 
which these circumstances seem to prescribe is that of pause 
and retrospection. It is thought that our position will be 
rendered clearer and our further progress facilitated by 
tracing historically, and from a general point of view, the 

A 



2 POLITICAL ECONOMY. 

course of speculation regarding economic phenomena, and con- 
templating the successive forms of opinion concerning thera 
in relation to the periods at which they were respectively 
evolved. And this is the task undertaken in the following 
pages. 

Such a study is in harmony with the best intellectual 
tendencies of our age, which is, more than anything else, 
characterised by the universal supremacy of the historical 
spirit. To such a degree has this spirit permeated all our 
modes of thinking, that with respect to every branch of 
knowledge, no less than with respect to every institution and 
every form of human activity, we almost instinctively ask, 
not merely what is its existing condition, but what were its 
earliest discoverable germs, and what has been the course of 
its development 1 The assertion of J. B. Say ^ that the 
history of Political Economy is of little value, being for the 
most part a record of absurd and justly exploded opinions, 
belongs to a system of ideas already obsolete, and requires at 
the present time no formal refutation. ^ It deserves notice 
only as reminding us that we must discriminate between 
history and antiquarianism : what from the first had no 
significance it is mere pedantry to study now. We need 
concern ourselves only with those modes of thinking which 
have ])revailed largely and seriously influenced practice in 
the past, or in which we can discover the roots of the present 
and the future. 

When we thus place ourselves at the point of view of 
history, it becomes unnecessary to discuss the definition of 
Political Economy, or to enlarge on its method, at the outset. 
It will suffice to conceive it as the theory of social wealth, 
or to acce[)t provisionally Say's definition, which makes it 

^ " Que pourrions-nous gagner k recueillir des opinions absurdes, des 
doctrines decriees et qui meritent de I'etre? II serait a la fois inutile 
et fastidieux." tcon. Pol. Pratique, IX.^^ 'F2ii:t\e, Tiie " cependant " 
which follows does not really modify this judgment. 

2 See Roscher's Geschichte der National -cekonomik in DeutscTdandt 
Vorrede, 



INTRODUCTORY. 3 

the science of the production, distribution, and consumption 
of wealth. Any supplementary ideas which re(niiL'e to he 
taken into account will be suggested in the progress of oup 
survey, and the determination of the proper method of economic 
research will be treated as one of the principal residts of 
tlie historical evolution of the science. 

The history of Political Economy must of course be dis- 
tinguished from the economic history of mankind, or of any 
separate portion of our race. The study of the succession of 
economic facts themselves is one thing; the study of the 
succession of theoretic ideas concerning the facts is another. 
And it is with the latter alone that we are here directly 
concerned. But these two branches of research, though dis- 
tinct, yet stand in the closest relation to each other. The 
rise and the form of economic doctrines have been largely 
conditioned by the practical situation, needs, and tendencies 
of the corresponding epochs. With each important social 
change new economic questions have presented themselves ; 
and the theories prevailing in each period have owed much of 
their influence to the fact that they seemed to offer solutions 
of the urgent problems of the age. Again, every thinker, 
however in some respects he may stand above or before his 
contemporaries, is yet a child of his time, and cannot be 
isolated from the social medium in which he lives and moves. 
He will necessarily be affected by the circumstances which 
surround him, and in particular by the practical exigencies of 
which his fellows feel the strain. This connection of theory 
with practice has its advantages and its dangers. It tends to 
give a real and positive character to theoretic inquiry ; but it 
may also be expected to produce exaggerations in doctrine, to 
lend undue prominence to particular sides of the truth, and 
to make transitory situations or temporary expedients be re- 
garded as universally normal conditions. 

There are other relations which we must not overlook in 
tracing the progress of economic opinion. The several branches 
of the science of society are so closely connected that the 



4 POLITICAL ECONOMY. 

history of no one of tliem can with perfect rationality bo 
treated apart, though such a treatment is recommended — indeed 
necessitated — by practical utility. The movement of economic 
thought is constantly and powerfully affected by the prevalent 
mode of thinking, and even the habitual tone of sentiment, 
on social subjects generally. All the intellectual manifesta- 
tions of a period in relation to human questions have a kindred 
character, and bear a certain stamp of homogeneity, which is 
vaguely present to our minds when we speak of the spirit of 
the age. Social speculation ai^ain, and economic research as 
one branch of it, is both through its philoso})hic method and 
through its doctrine under the influence of the sciences which 
in the order of development precede the social, especially of 
the science of organic nature. 

It is of the highest importance to bear in mind these several 
relations of economic research both to external circumstance 
and to other spheres of contemporary thought, because by 
keeping them in view we shall be led to form less absolute 
and therefore juster estimates of the successive phases of 
opinion. Instead of merely praising or blaming these accord- 
ing to the degrees of their accordance with a predetermined 
standard of doctrine, we shall view them as elements in an 
ordered series, to be studied mainly with respect to their filia- 
tion, their opportuneness, and their influences. AYe shall not 
regard each new step in this theoretic development as implying 
an unconditional negation of earlier views, which often had a 
relative justification, resting, as they did, on a real, though 
narrower, basis of experience, or assuming the existence of a 
different social order. !N^or shall we consider all the theoretic 
positions now occupied as definitive ; for the practical system of 
life which they tacitly assume is itself susceptible of change^ 
and destined, without doubt, more or less to undergo it. 
Within the limits of a sketch like the present these considera- 
tions cannot be fully w^orked out ; but an effort will be made 
to keep them in view, and to mark the relations here indicated, 
wherever their influence is specially important or interesting. 



INTRODUCTORY. 



5 



The particular situation and tendencies of the several 
lliiiikers whose names are associated with economic doctriuea 
have, of course, modified in a greater or less degree the spirit 
or form of those doctrines. Their relation to special prede- 
cessors, their native temperament, their early training, their 
religious prepossessions and political partialities, have all had 
their effects. To these we shall in some remarkable instances 
direct attention ; but, in the main, they are, for our present 
purpose, secondary and subordinate. The ensemble must pre- 
ponderate over the individual ; and the constructors of theories 
must be regarded as organs of a common intellectual and social 
movement. 

The history of economic inquiry is most naturally divided 
into the three great periods of (i) the ancient, (2) the mediaeval, 
and (3) the modern worlds. In the two former, this branch 
of study could exist only in a rudimentary state. It is evident 
that for any considerable development of social theory two 
conditions must be fulfilled. First, the phenomena must have 
exhibited themselves on a sufificiently extended scale to supply 
adequate matter for observation, and afford a satisfactory basis 
for scientific generalisations ; and secondly, whilst the spectacle 
is thus provided, the spectator must have been trained for his 
task, and armed with the appropriate aids and instruments of 
research, that is to say, there must have been such a previous 
cultivation of the simpler sciences as will have both furnished 
the necessary data of doctrine and prepared the proper methods 
of investigation. Sociology requires to use for its purposes 
theorems which belong to the domains of physics and biology, 
and w^hich it must borrow from their professors : and, on the 
logical side, the methods wdiich it has to employ — deductive, 
observational, comparative — must have been previously shaped 
in the cultivation of mathematics and the study of the 
inorganic world or of organisms less complex than the social. 
Hence it is plain that, though some laws or tendencies of 
society must have been forced on men's attention in every age 
by practical exigencies which could not be postponed, and 



6 POLITICAL ECONOMY. 

though the questions thus raised must have received some 
empirical solution, a really scientific sociology must be the 
product of a very advanced stage of intellectual development. 
And this is true of the economic, as of other branches of social 
theory. We shall therefore content ourselves with a general 
outline of the character of economic thought in antiquity and 
the Middle Ages, and of the conditions which determined that 
character. 



CHAPTEE 11. 

ANCIENT TIMES, 

The earliest surviving expressions of thought on economic 
subjects have come down to us from the Oriental theocracies. 
The general spirit of the corresponding type of social life con- 
sisted in taking imitation for the fundamental principle of 
education, and consolidating nascent civilisation by heredity 
of the different functions and professions, or even by a system 
of castes, hierarchically subordinated to each other according 
to the nature of their respective offices, under the common 
supreme direction of the sacerdotal caste. This last was 
charged with the traditional stock of conceptions, and their 
application for purposes of discipline. It sought to realise a 
complete regulation of human life in all its departments on 
the basis of this transmitted body of practical ideas. Con- 
servation is the principal task of this social order, and its most 
remarkable quality is stability, which tends to degenerate into 
stagnation. Eut there can be no doubt that the useful arts 
were long, though slowly, progressive under this regime, from 
which they were inherited by the later civilisations, — the 
system of classes or castes maintaining the degree of division 
of labour which had been reached in those early periods. The 
leading members of the corporations which presided over the 
theocracies without doubt gave much earnest thought to the 
conduct of industry, which, unlike war, did not imperil their 
political pre-eminence by developing a rival class. But, con- 
ceiving life as a whole, and making its regulation their primary 
aim, they naturally considered most the social reactions which 



8 POLITICAL ECONOMY. 

industry is fitted to exercise. The moral side of economics ia 
the one they habitually contemplate, or (what is not the same) 
the economic side of morals. They abound in those warnings 
against greed and the haste to be rich which religion and 
pliilosophy have in all ages seen to be necessary. They insist 
on honesty in mutual dealings, on just weights and measures, 
on the faithful observance of contracts. They admonish against 
the pride and arrogance apt to be generated by riches, against 
undue prodigality and self-indulgence, and enforce the duties 
of justice and beneficence towards servants and inferiors. 
Whilst, in accordance with the theological spirit, the personal 
acquisition of w^ealth is in general thesis represented as deter- 
mined by divine wills, its dependence on individual diligence 
and thrift is emphatically taught. There is indeed in the fully 
developed theocratic systems a tendency to carry precept, 
which there differs little from command, to an excessive degree 
of minuteness, — to prescribe in detail the time, the mode, and 
the accompaniments of almost every act of every member of 
the community. This s^^stem of exaggerated surveillance is 
connected with the union, or rather confusion, of the spiritual 
and temporal power>, whence it results that many parts of the 
government of society are conducted by direct injunction or 
restraint, which at a later stage are intrusted to general intel- 
lectual and moral influences. 

The practical economic enterprises of Greek and Eoman 
antiquity could not, even independently of any special adverse 
influences, have competed in magnitude of scale or variety of 
resource with those of modern times. The unadvanced con- 
dition of physical science prevented a large application of the 
less obvious natural powers to production, or the extensive 
use of machinery, which has acquired such an immense 
development as a factor in modern industry. The imper- 
fection of geographicar knowledge and of the means of com- 
munication and transport were impediments to the growth 
of foreign commerce. These obstacles arose necessarily out 
of the mere immaturity of the industrial life of the periods in 



ANCIENT TIMES. 9 

question. But more deeply rooted impediments to a vigcroug 
and expansive economic practical system existed in the char- 
acteristic principles of the civilisation of antiquity. Some 
writers have attempted to set aside the distinction between 
the ancient and modern worlds as imaginary or unimportant, 
and, whilst admitting the broad separation between ourselves 
and the theocratic peoples of the East, to represent the Greeks 
and Romans as standing on a substantially similar ground of 
thought, feeling, and action with the Western populations of 
our own time. But this is a serious error, arising from the 
same too exclusive pre-occupation with the cultivated classes 
and with the mere speculative intellect which has often led 
to an undue disparagement of the Middle Ages. There is 
this essential difference between the spirit and life of ancient 
and of modern communities, that the former were organised 
for war, the latter during their Avhole history have increasingly 
tended to be organised for industry, as their practical end and 
aim. The profound influence of these differing conditions en 
every form of human activity must never be overlooked or 
forgotten. With the military constitution of ancient societies 
the institution of slavery was essentially connected. Far from 
being an excrescence on the contemporary system of life, as 
it was in the modern West Indies or the United States of 
America, it was so entirely in harmony with that life that the 
most eminent thinkers regarded it as no less indispensable 
than inevitable. It does, indeed, seem to have been a tem- 
porary necessity, and on the whole, regard being had to what 
might have taken its place, a relative good. But it was 
attended with manifold evils. It led to the prevalence 
amongst the citizen class of a contempt for industrial occupa- 
tions ; eveiy form of production, with a partial exception in 
favour of agriculture, was branded as unworthy of a free man, 
— the only noble forms of activity being those directly con- 
nected with public life, whether military or administrative. 
Labour was degraded by the relegation of most departments 
of it to the servile class, above whom the free artisans were 



IG POLITICAL ECONOMY. 

l)Ut little elevated in general esteem. The producers being 
tlms for the most part destitute of intellectual cultivation and 
excluded from any share in civic ideas, interests, or efforts, 
were unfitted in character as well as by position for the habits 
of skilful combination and vigorous initiation which the prog- 
ress of industry demands. To this must be added tliat tlie 
comparative insecurity of life and property arising out of 
military habits, and the consequent risks which attended 
accumulation, were grave obstructions to the formation of 
large capitals, and to the establishment of an effective system 
of credit. These causes conspired with the undeveloped state 
of knowledge and of social relations in giving to the economic 
life of the ancients the limitation and monotony which con- 
trast so strongly with the inexhaustible resource, the ceaseless 
expansion, and the thousandfold variety of the same activities 
in the modern world. It is, of course, absurd to expect in- 
compatible qualities in any social system ; each system must 
be estiuiated according to the work it has to do. Kow the 
historical vocation of the ancient civilisation was to be accom- 
plished, not through industry, but through war, which was in 
the end to create a condition of things admitting of its own 
elimination and of the foundation of a regime based on pacific 
activity. 

The Greeks. 

This office was, ho^vever, reserved fcr Rome, as the final 
result of her system of conquest; the military activity of 
Greece, thotigh continuous, was incoherent and sterile, except 
in the defence against Persia, and did not issue in the accom- 
plishment of any such social mission. It was, doubtless, the 
inadequacy of the warrior life, under these conditions, to 
absorb the faculties of the race, that threw the energies of its 
most eminent members into the channel of intellectual activity, 
and produced a singularly rapid evolution of the aesthetic, 
philosophic, and scientific germs transmitted by the theocratic 
societies. 



ANCIENT TIMES. ii 

In the Works and Days of Hesiod, we find an order of 
thinking in the economic sphere very similar to that of the 
theocracies. With a recognition of the divine disposing power, 
and traditional rules of sacerdotal origin, is combined practical 
sagacity embodied in precept or proverbial saying. But tlie 
development of abstract thought, beginning from the time of 
Thales, soon gives to Greek culture its characteristic form, and 
marks a new epoch in the intellectual history of mankind. 

The movement was now begun, destined to mould the 
whole future of humanity, which, gradually sapping the old 
hereditary structure of theological convictions, tended to the 
substitution of rational theories in every department of specu- 
lation. The eminent Greek thinkers, while taking a deep 
interest in the rise of positive science, and most of them study- 
ing the only science — that of geometry — then assuming its 
definitive character, were led by the social exigencies which 
always powerfully afiect groat minds to study with special 
care the nature of man and the conditions of his existence in 
society. These studies were indeed essentially premature ; a 
long development of the inorganic and vital sciences was 
necessary before sociology or morals could attain their normal 
constitution. But by their prosecution amongst the Greeks 
a noble intellectual activity was kept alive, and many of those 
partial lights obtained for which mankind cannot afford to 
wait. Economic inquiries, along with others, tended towards 
rationality ; Plutus was dethroned, and terrestrial substituted 
for supernatural agencies. But such inquiries, resting on no 
sufficiently large basis of practical life, could not attain any 
considerable results. The military constitution of society, and 
the existence of slavery, which was related to it, leading, as 
has been shown, to a low estimate of productive industry, 
turned away the habitual attention of thinkers from that 
domain. On the other hand, the absorption of citizens in the 
life of the state, and their pre-occupation with party struggles, 
brought questions relating to politics, properly so called, into 
special prominence. The principal writers on social subjects 



12 POLITICAL ECONOMY. 

are therefore almost exclusively occupied with the examination 
and comparison of political constitutions, and with the search 
after the education best adapted to train the citizen for public 
functions. And we find, accordingly, in them no systematic or 
adequate handling of economic questions, — only some happy 
ideas and striking partial anticipations of later research. 

In their thinking on such questions, as on all sociological 
subjects the following general features are observable. 

1. The individual is conceived as subordinated to the state, 
through which alone his nature can be developed and com- 
pleted, and to the maintenance and service of which all 
his efforts must be directed. The great aim of all political 
thought is the formation of good citizens ; every social ques- 
tion is studied primarily from the ethical and educational 
point of view. The citizen is not regarded as a producer, but 
only as a possessor, of material wealth ; and this wealth is not 
esteemed for its own sake or for the enjoyments it procures, 
but for the higher moral and public aims to which it may be 
made subservient. 

2. The state, therefore, claims and exercises a controlling 
and regulating authority over every sphere of social life, 
including the economic, in order to bring individual action 
into harmony with the good of the whole. 

3. With these fundamental notions is combined a tendency 
to attribute to institutions and to legislation an unlimited 
efficacy, as if society had no spontaneous tendencies, but 
would obey any external impulse, if impressed upon it with 
sufficient force and continuity. 

Every eminent social speculator had his ideal state, which 
approximated to or diverged from the actual or possible, 
according to the degree in which a sense of reality and a 
positive habit of thinking characterised the author. 

The most celebrated of these ideal systems is that of Plato. 
In it the idea of the subordination of the individual to Ihe 
state appears in its most extreme form. Within that class of 
the citizens of his republic who represent the highest type of 



I 



ANCIENT TIMES. 13 

life, community of property and of wives is established, as 
the most effective means of suppressing the sense of private 
interest, and consecrating the individual entirely to the public 
service. It cannot perhaps be truly said that his scheme was 
incapable of realisation in an ancient community favourably 
situated for the purpose. But it would soon be broken to 
pieces by the forces which would be developed in an industrial 
society. It has, however, been the fruitful parent of modern 
Utopias, specially attractive as it is to minds in which the 
literary instinct is stronger than the scientific judgment, in 
consequence of the freshness and brilliancy of Plato's exposi- 
tion and the unrivalled charm of his style. Mixed wivh what 
we should call the chimerical ideas in his work, there are 
many striking and elevated moral conceptions, and, what is 
more to our present purpose, some just economic analyses. In 
particular, he gives a correct account of the division and com- 
bination of employments, as they naturally arise in society. 
The foundation of the social organisation he traces, perhaps, 
too exclusively to economic grounds, not giving sufficient 
weight to the disinterested social impulses in men which tend 
to draw and bind them together. But he explains clearly how 
the different wants and capacities of individuals demand and 
give rise to mutual services, and how, by the restriction of 
each to the sort of occupation to which, by his position, 
abilities, and training, he is best adapted, everything needful 
for the whole is more easily and better produced or effected. 
In the spirit of all the ancient legislators he desires a self- 
sufficing state, protected from unnecessary contacts witli 
foreign populations, which might tend to break down its 
iaternal organisation or to deteriorate the national character. 
Hence he discountenances foreign trade, and with this view 
removes his ideal city to some distance from the sea. The 
limits of its territory are rigidly fixed, and the population is 
restricted by the prohibition of early marriages, by the ex- 
posure of infants, and by the maintenance of a determinate 
number of individual lots of land in the hands of the citizens 



14 POLITICAL ECONOMY. 

who cultivate the soil. These precautions are inspired moro 
by political and moral motives than by the Malthusian fear 
of failure of subsistence. Plato aims, as far as possible, at 
equality of property amongst the families of the community 
which are engaged in the immediate prosecution of industry. 
This last class, as distinguished from the governing and 
nnlitary classes, he holds, according to the spirit of his age, in 
but little esteem ; he regards their habitual occupations as 
tendinor to the deofradation of the mind and the enfeeblement 
(f the body, and rendering those who follow them unfit for 
the higher duties of men and citizens. The lowest forms of 
labour he would commit to foreigners and slaves. Again, in 
the spirit of ancient theory, he wishes (Legg., v. 12) to banish 
the precious metals, as far as practicable, from use in internal 
commerce, and forbids the lending of money on interest, 
leaving indeed to the free will of the debtor even the repay- 
ment of the capital of the loan. All economic dealings he 
subjects to active control on the part of the Government, not 
merely to prevent violence and fraud, but to check the growth 
of luxurious habits, and secure to the population of the state 
a due supply of the necessaries and comforts of life. 

Contrasted with the exaggerated idealism of Plato is the 
somewhat limited but eminently practical genius of Xenophon. 
In him the man of action predominates, but he has also a large 
element of the speculative tendency and talent of the Greek. 
His treatise entitled OEconomicus is well worth reading for the 
interesting and animated picture it presents of some aspects of 
contemporary life, and is justly praised by Sismondi for the 
spirit of mild philanthropy and tender piety which breathes 
through it. But it scarcely passes beyond the bounds of 
domestic economy, though within that limit its author 
exhibits much sound sense and sagacity. His precepts for 
the judicious conduct of private property do not concern us 
here, nor his wise suggestions for the government of the 
family and its dependants. Yet it is in this narrower sphere 
and in general in the concrete domain that his chief excellence 



ANCIENT TIMES. 



15 



lies ; to economics in tlieir wider aspects he does not con- 
tribute much. He shares the ordinary prefereni^e of his fellow- 
countrymen for agriculture over other employments, and is, 
indeed, enthusiastic in his praises of it as developing patriotic 
and religious feeling and a respect for property, as furnishing 
the best preparation for military life, and as leaving sufficient 
time and thought disposable to admit of considerable intel- 
lectual and political activity. Yet his practical sense leads 
him to attribute greater importance than most other Greek 
writers to manufactures, and still more to trade, to enter more 
largely on questions relating to their conditions and develop- 
ment, and to bespeak for them the countenance and protection 
of the state. Though his views on the nature of money are 
vague, and in some respects erroneous, he sees that its export 
in exchange for commodities will not impoverish the com- 
munity. He also insists on the necessity, with a view to 
a flourishing commerce with other countries, of peace, of a 
courteous and respectful treatment of foreign traders, and of a 
prompt and equitable decision of their legal suits. The insti- 
tution of slavery he of course recognises and does not dis- 
approve ; he even recommends, for the increase of the Attic 
revenues, the hiring out of slaves by the state for labour in 
the mines, after branding them to prevent their escape, the 
number of slaves being constantly increased by fresh purchases 
out of the gains of the enterprise. [De Vect., 3, 4.) 

Almost the whole system of Greek ideas up to the time 
of Aristotle is represented in his encyclopaedic construction. 
Mathematical and astronomical science was largely developed 
at a later stage, but in the field of social studies no higher 
point was ever attained by the Greeks than is reached in the 
writings of this great thinker. Both his gifts and his situa- 
tion eminently favoured him in the treatment of these 
subjects. He combined in rare measure a capacity for keen 
observation with generalising power, and sobriety of judgment 
with ardour for the public good. All that was original or 
significant in the political life of Hellas had run its course 



i6 POLITICAL ECONOMY. 

before his time or under his own eyes, and he had thus a laiga 
basis of varied experience on which to ground his conclusions. 
Standing outside the actual movement of contemporary public 
life, he occupied the position of thoughtful spectator and 
impartial judge. He could not, indeed, for reasons already 
stated, any more than other Greek speculators, attain a fully 
normal attitude in these researches. !N"or could he pass 
beyond the sphere of what is now called statical sociology; 
the idea of laws of the historical development of social 
phenomena he scarcely apprehended, except in some small 
degree in relation to the succession of political forms. But 
there is to be found in his writings a remarkable body of 
sound and valuable thoughts on the constitution and work- 
ing of the social organism. The special notices of economic 
subjects are neither so numerous nor so detailed as we should 
desire. Like all the Greek thinkers, he recognises but one 
doctrine of the state, under which ethics, politics proper, and 
economics take their place as departments, bearing to each 
other a very close relation, and having indeed their lines of 
demarcation from each other not very distinctly marked. 
When wealth comes under consideration, it is studied not as 
an end in itself, but with a view to the higher elements and 
ultimate aims of the collective life. 

The origin of society he traces, not to economic necessities, 
but to natural social impulses in the human constitution. 
The nature of the social union, w^hen thus established, being 
determined by the partly spontaneous partly systematic com- 
bination of diverse activities, he respects the independence of the 
latter whilst seeking to effect their convergence. He therefore 
opposes himself to the suppression of personal freedom and 
initiative, and the excessive subordination of the individual to 
the state, and rejects the community of property and wives 
proposed by Plato for his governing class. The principle of 
private property he regards as deeply rooted in man, and the 
evils which are alleged to result from the corresponding social 
' ordinance he thinks ought really to be attributed either to the 



ANCIENT TIMES. 17 

imperfections of our nature or to tlie vices of other public 
institutions. Community of goods must, in liis view, tend to 
neglect of the common interest and to the disturbance of social 
harmony. 

Of the several classes which provide for the different wants 
of the society, those who are occupied directly with its material 
needs — the immediate cultivators of the soil, the mechanics and 
artificers — are excluded from any share in the government of 
the state, as being without the necessary leisure and cultivation, 
and apt to be debased by the nature of their occupations. In 
a celebrated passage he propounds a theory of slavery, in which 
it is based on the universality of the relation between command 
and obedience, and on the natural division by which the ruling 
is marked off from the subject race. He regards the slave as 
having no independent will, but as an '^ animated tool " in the 
hands of his master; and in his subjection to such control, if 
only it be intelligent, Aristotle holds that the true well-being 
of the inferior as well as of the superior is to be found. This 
view, so shocking to our modern sentiment, is of course not 
personal to Aristotle ; it is simply the theoretic presentation 
of the facts of Greek life, in which the existence of a body of 
citizens pursuing the higher culture and devoted to tlie tasks 
of war and government was founded on the systematic degra- 
dation of a wronged and despised class, excluded from all the 
higher ofSces of human beings and sacrificed to the mainten- 
ance of a special typo of society. 

The methods of economic acquisition are divided by Aristotle 
into two, one of which has for its aim the appropriation of 
natural products and their application to the material uses of 
the household ; under this head come hunting, fishing, cattle- 
rearing, and agriculture. With this primary and ''natural'' 
method is, in some sense, contrasted the other to which 
Aristotle gives the name of *' chrematistic," in which an active 
exchange of products goes on, and money comes into opera- 
tion as its medium and regulator. A certain measure of this 
** non-natural'' method, as it may be termed in opposition to 

B 



i8 POLITICAL ECONOMY. 

the preceding and simpler form of industrial life, is accepted 
by Aristotle as a necessary extension of the latter, arising out 
of increased activity of intercourse, and satisfying real wants. 
But its development on the great scale, founded on the thirst 
for enjoyment and the unlimited desire of gain, he condemns 
as unworthy and corrupting. Though his views on this suhject 
appear to be principally based on moral grounds, there are 
some indications of his having entertained the erroneous opinion 
held by the physiocrats of the eighteenth century, that agri- 
culture alone (with the kindred arts above joined with it) is 
truly productive, whilst the other kinds of industry', which 
either modify the products of nature or distribute them by 
way of exchange, however convenient and useful they may be, 
make no addition to the wealth of the community. 

He rightly regards money as altogether different from wealth, 
illustrating the difference by the story of Midas. And he 
seems to have seen that money, thougli its use rests on a social 
convention, must be composed of a material possessing an 
independent value of its own. That his views on capital were 
indistinct appears from his famous argument against interest 
on loans, which is based on the idea that money is barren and 
cannot produce money. 

Like the other Greek social philosophers, Aristotle recom- 
mends to the care of Governments the preservation of a due 
proportion between the extent of the civic territory and its 
population, and relies on ante-nuptial continence, late marriages, 
and the prevention or destruction of births for the due limita- 
tion of the number of citizens, the insufficiency of the latter 
being dangerous to the independence and its superabundance 
to the tranquillity and good order of the state. 

The Eomans. 

Notwithstanding the eminently practical, realistic, and utili- 
tarian character of the Eomans, there was no energetic exercise 
of their powers in the economic field; they developed no 



ANCIENT TIMES. 19 

large and many-sided s^^steni of production and exchange. 
Their historic mission Avas military and political, and the 
national energies were mainly devoted to the public service 
at home and in the field. To agriculture, indeed, much 
attention was given from the earliest times, and on it was 
founded the existence of the hardy population which won 
the first steps in the march to universal dominion. But in 
the course of their history the cultivation of the soil by a 
native yeomanry gave place to the introduction, in great 
numbers, of slave labourers acquired by their foreign con- 
quests ; and for the small properties of the earlier period were 
substituted the vast estates — the latifiindia — wliich, in the 
judgment of Pliny, were the ruin of Italy.^ The industrial 
arts and commerce (the latter, at least when not conducted on 
a great scale) they regarded as ignoble pursuits, unworthy of 
free citizens ; and this feeling of contempt was not merely a 
prejudice of narrow or uninstructed minds, but was shared by 
Cicero and others among the most liberal spirits of the nation.''^ 
As might be expected from the want of speculative originality 
among the Romans, there is little evidence of serious theoretic 
inquiry on economic subjects. Their ideas on these as on 
other social questions were for the most part borrowed from 
the Greek thinkers. Such traces of economic thought as do 
occur are to be found in (i) the philosophers, (2) the waiters 
de re rust lea, and (3) the jurists. It must, however, be ad- 
mitted that many of the passages in these authors referred to 
by those who assert the claim of the Romans to a more pro- 
minent place in the history of the science often contain only 
obvious truths or vague generalities. 

^ "Locis, quse nunc, vix seminario exiguo militnm relicto, servitia 
Romana ab solitudine vindicant." — Liv. vi. 12. *'Villarum infinita 
spatia." Tac. Ann. iii. 53. 

^ " Opifices omnes in sordida arte versantur ; nee enira quidquam 
ingenuum habere potest officina." Cic. de Off, i. 42. *' Mercatura, si 
tenuis est, sordida putanda est : sin magna et copiosa, multa undique 
apportans multisqne sine vanitate iinpertiens, non est admodum vituper- 
ftnda."--///Z(i. "Quajstus omnis Patribus indecorus visus est." Liv. xxi.63. 



20 POLITICAL ECONOMY. 

In the philosophers, ^vhom Cicero, Seneca, and the eldei 
Ph'ny sufficiently represent (the last indeed being rather a 
learned encyclopaedist or polyhistor than a philosopher), we 
find a general consciousness of the decay of industry, the 
relaxation of morals, and the growing spirit of self-indulgence 
amongst their contemporaries, who are represented as deeply 
tainted with the imported vices of the conquered nations. 
This sentiment, both in these writers and in the poetry and 
miscellaneous literature of their times, is accompanied by a 
half-factitious enthusiasm for agriculture and an exaggerated 
estimate of country life and of early Roman habits, which are 
principally, no doubt, to be regarded as a form of protest 
against existing abuses, and, from this point of view, remind 
us of the declamations of Eousseau in a not dissimilar age. 
But there is little of large or just tliinking on the prevalent 
economic evils and their proper remedies. Pliny, still further 
in the spirit of Rousseau, is of opinion that the introduction 
of gold as a medium of exchange was a thing to be deplored, 
and that the age of barter was preferable to that of money. 
He expresses views on the necessity of preventing the efflux 
of money similar to those of the modern mercantile school — 
views which Cicero ali^o, though not so clearly, appears to 
have entertained. Cato, Yarro, and Columella concern them- 
selves more with the technical precepts of husbandry than 
with the general conditions of industrial success and social 
well-being. But the two last named have the great merit of 
having seen and proclaimed the superior value of free to slave 
labour, and Columella is convinced that to the use of the 
latter the decline of the agricultural economy of the Romans 
was in a great measure to be attributed. These three writers 
agree in the belief that it was chiefly by the revival and reform 
of agriculture that the threatening inroads of moral corruption 
could be stayed, the old Roman virtues fostered, and the 
foundations of the commonwealth strengthened. Their atti- 
tude is thus similar to that of the French physiocrats invok- 
ing the improvement and zealous pursuit of agriculture alike 



ANCIENT TIMES. 21 

against the material evils and the social degeneracy of their 
time. The question of the coniparative merits of the large 
and small systems of cultivation appears to have been much 
discussed in the old Roman, as in the modern European 
world ; Columella is a decided advocate of the petite culture. 
The jurists were led by the coincidence which sometimes 
takes place between their point of view and that of economic 
science to make certain classifications and establish some more 
or less refined distinctions which the modern economists have 
either adopted from them or used independently. They appear 
also (though this has been disputed, Neri and Carli maintain- 
ing the affirmative, Pagnini the negative) to have had correct 
notions of the nature of money as having a value of its own, 
determined by economic conditions, and incapable of being 
impressed upon it by convention or arbitrarily altered by 
public authority. But in general we find in these writers, as 
might be expected, not so much the results of independent 
thought as documents illustrating the facts of Eoman economic 
life, and the historical policy of the nation with respect to 
economic subjects. From the latter point of view they are 
of much interest ; and by the information they supply as to 
the course of legislation relating to property generally, to 
sumptuary control, to the restrictions imposed on spendthrifts, 
to slavery, to the encouragement of population, and the like, 
they give us much clearer insight than we should otherwise 
possess into influences long potent in the history of Rome and 
of the Western world at large. But, as it is with the more 
limited field of systematic thought on political economy that 
we are here occupied, we cannot enter into these subjects. 
One matter, however, ought to be adverted to, because it was 
not only repeatedly dealt with by legislation, but is treated 
more or less fully by all Roman writers of note, namely, the 
interest on money loans. The rate was fixed by the laws of 
the Twelve Tables ; but lending on interest was afterwards 
(B.C. 341) entirely prohibited by the Genucian Law. In the 
legislation of Justinian, rates were sanctioned varying from 



22 POLITICAL ECONOMY. 

four to eight per cent, according to tlie nature of the case, tha 
latter being fixed as the ordinary mercantile rate, whilst com- 
pound interest was forbidden. The Eoman theorists, almost 
without exception, disapprove of lending on interest altoorether. 
Cato, as Cicero tells us, thought it as bad as murder (" Quid 
fenerari? Quid hominem occidere?" De Off. ii. 25); and 
Cicero, Seneca, Pliny, Columella all join in condemning it. 
It is not difficult to see how in early states of society the 
trade of money-lending becomes, and not unjustly, the object 
of popular odium ; but that these writers, at a period when 
commercial enterprise had made considerable progress, should 
continue to reprobate it argues very imperfect or confused 
ideas on the nature and functions of capital. It is probable 
that practice took little heed either of these speculative ideas 
or of legislation on the subject, which experience shows can 
always be easily evaded. The traffic in money seems to have 
gone on all through Eoman history, and the rate to have 
fluctuated according to the condition of the market. 

Looking back on the history of ancient economic specula- 
tion, we see that, as might be anticipated a priori^ the results 
attained in that field by the Greek and Roman writers were 
very scant}^ As Duhring has well remarked, the questions 
with which the science has to do were regarded by the ancient 
thinkers rather from their political than their properly eco- 
nomic side. This we have already pointed out with respect 
to their treatment of the subject of population, and the same 
may be seen in the case of the doctrine of the division of 
labour, with which Plato and Aristotle are in some degree 
occupied. They regard that principle as a basis of social 
classification, or use it in showing that society is founded on 
a spontaneous co-operation of diverse activities. Prom the 
strictly economic point of view, there are three important 
propositions which can be enunciated respecting that division : 
— (i) that its extension within any branch of production 
makes the products cheaper; (2) that it is limited by the 
extent of the market ; and (3) that it can be carried further 



ANCIENT TIMES. 



23 



in manufactiiTes than in agriculture. But we ^hall look in 
vain for tliesvi propositions in the ancient writers ; the first 
alone might be inferred from their discussions of the subject. 
It has been the tendency especially of German scholars to 
magnify unduly the extent and value of the contributions of 
antiquity to economic knowledge. The Greek and Roman 
authors ought certainly not to be omitted in any account of 
the evolution of this branch of study. But it must be kept 
steadily in view that w^e find in them only first hints or rudi- 
ments of general economic truths, and that the science is 
essentially a modern one. We shall indeed see hereafter that 
it could not have attained its definitive constitution before our 
Qim time. 



CHAPTER III. 

THE MIDDLE AGES. 

The Middle Ages (400-1300 a.d.) form a period of great 
significance in the economic, as in the general, history of 
Europe. They represent a vast transition, in which the germs 
of a new world were deposited, but in which little was fully 
elaborated. There is scarcely anything in the later movement 
of European society w^hich we do not find there, though 
as yet, for tlie most part, crude and undeveloped. The 
mediaeval period was the object of contemptuous depreciation 
on the part of the liberal schools of the last century, prin- 
cipally because it contributed so little to literature. But 
there are things more important to mankind than literature ; 
and the great men of the Middle Ages had enough to do in 
other fields to occupy their utmost energies. The develop- 
ment of the Catholic institutions and the gradual establishment 
and maintenance of a settled order after the dissolution of the 
Western empire absorbed the powers of the thinkers and 
practical men of several centuries. The first mediaeval phase, 
from the commencement of the fifth century to the end of the 
seventh, was occupied with the painful and stormy struggle 
towards the foundation of the new ecclesiastical and civil 
system ; three more centuries were filled with the work of its 
consolidation and defence against the assaults of nomad popula- 
tions j only in the final phase, during the eleventh, twelfth, and 
thirteenth centuries, when the unity of the West was founded 
by the collective action against impending i\roslem invasion, did 



THE MIDDLE AGES. 25 

it enjoy a sufficiently secure and stable existence to exhibit 
its essential character and produce its noblest personal types. 
The elaboration of feudalism was, indeed, in progress during 
the whole period, showing itself in the decomposition of 
power and the hierarchical subordination of its several grades, 
the movement being only temporarily suspended in the second 
phase by the salutary dictatorship of Charlemagne. But not 
before the first century of the last phase was the feudal system 
fully constituted. In like manner, only in the final phase 
could the effort of Catholicism after a universal discipline be 
carried out on the great scale — an effort for ever admirable, 
though necessarily on the whole unsuccessfuh 

(No large or varied economic activity was possible under the 
full ascendency of feudalism. That organisation, as has been 
abundantly shown by philosophical historians, was indispens- 
able for the preservation of order and for public defence, and 
contributed important elements to general civilisation. But, 
whilst recognising it as opportune and relatively beneficent, 
we must not expect from it advantages inconsistent with its 
essential nature and historical office. The class which pre- 
dominated in it was not sympathetic with industry, and held 
the handicrafts in contempt, except those subservient to war 
or rural sports. The whole practical life of the society was 
founded on territorial property ; the wealth of the lord con- 
sisted in the produce of his lands and the dues paid to him in 
kind ; this w^ealth was spent in supporting a body of retainers 
whose services were repaid by their maintenance. There 
could be little room for manufactures, and less for commerce ; 
and agriculture was carried on with a view to the wants of 
the family, or at most of the immediate neighbourhood, not 
to those of a wider market. The economy of the period was 
therefore simple, and, in the absence of special motors from 
without, unprogressive. 

In the latter portion of the Middle Ages several circum- 
stances came into action which greatly modified these con- 
ditions. The Crusades undoubtedly produced a powerful 



26 POLITICAL ECONOMY. 

economic effect by transferring in many cases the possessions 
of tlie feudal cliiefs to the industrious classes, whilst by 
bringing different nations and races into contact, by enlarging 
the horizon and widening the conceptions of the populations, 
as well as by affording a special stimulus to navigation, they 
tended to give a new activity to international trade. The 
independence of the towns and the rising importance of the 
burgher class supplied a counterpoise to the power of the land 
aristocracy ; and the strength of these new social elements 
w^as increased by the corporate constitution given to the 
urban industries, the police of the towns being also founded 
on the trade guilds, as that of the country districts was on the 
feudal relations. The increasing demand of the towns for the 
products of agriculture gave to the prosecution of that art a 
more extended and speculative character ; and this again led 
to improved methods of transport and communication. But 
the range of commercial enterprise continued everywhere 
narrow, except in some favoured centres, such as the Italian 
republics, in which, however, the growth of the normal habits 
of industrial life was impeded or perverted by military ambi- 
tion, which was not, in the case of those communities, checked 
as it was elsewhere by the pressure of an aristocratic class. 

Every great change of opinion on the destinies of man 
and the guiding principles of conduct must react on the 
sphere of material interests ; and the Catholic religion had a 
powerful influence on the economic life of the Middle Ages. 
Christianity inculcates, perhaps, no more effectively than the 
older religions the special economic virtues of industry, thrift, 
fidelity to engagements, obedience to rightful authority ; but 
it brought out more forcibly and presented more persistently 
the higher aims of life, and so produced a more elevated way 
of viewing the different social relations. It purified domestic 
life, a reform which has the most important economic results. 
It taught the doctrine of fundamental human equality, 
heightened the dignity of labour, and preached with quite 
a new emphasis the obligations of love, compassion, and 



THE MIDDLE AGES. 27 

forgiveness, and the claims of the poor. The constant pre- 
sentation to the general mind and conscience of these ideas, 
the dogmatic bases of which were scarcely as yet assailed by 
scepticism, must have had a powerful effect in moralising life. 
But to the influence of Christianity as a moral doctrine was 
added that of the Church as an organisation, charged wdth 
the application of the doctrine to men's daily transactions. 
Besides the teachings of the sacred books, there was a mass 
of ecclesiastical legislation providing specific prescriptions for 
the conduct of the faithful. And this legislation dealt with 
the economic as with other provinces of social activity. In 
the Corpus Juris Caiionici, which condenses the result of 
centuries of study and effort, along with much else is set out 
"what we may call the Catholic economic theory, if we under- 
stand by theory, not a reasoned explanation of phenomena, 
but a body of ideas leading to prescriptions for the guidance 
of conduct. Life is here looked at from the point of view 
of spiritual well-being ; the aim is to establish and maintain 
amongst men a true kingdom of God. 

The canonists are friendly to the notion of a community 
of goods from the side of sentiment ('' Dulcissima rerum 
possessio communis est "), though they regard the distinction 
of meum and tuum as an institution necessitated by the fallen 
state of man. In cases of need the public authority is justified 
in re-establishing ^ro hac vice the primitive community. The 
care of the poor is not a matter of free choice ; the relief 
of their necessities is dehitum legale. Avaritia is idolatry ] 
ctipiditas, even when it does not grasp at what is another's, 
is the root of all evil, and ought to be not merely regulated 
but eradicated. Agriculture and handiwork are viewed as 
legitimate modes of earning food and clothing ; but trade is 
regarded with disfavour, because it was held almost certainly 
to lead to fraud : of agriculture it was said, " Deo non dis- 
plicet ; " but of the merchant, " Deo placere non potest." The 
seller was bound to fix the price of his w'ares, not according 
to the market rate, as determined by supply and demand, 



28 POLITICAL ECONOMY. 

but according to their real value (justum pretium). He must 
not conceal the faults of his merchandise, nor take advan- 
tage of the need or ignorance of the buyer to obtain from 
him more than the fair price. Interest on money is for- 
bidden j the prohibition of usury is, indeed, as Roscher says, 
the centre of the whole canonistic system of economy, as 
well as the foundation of a great part of the ecclesiastical 
jurisdiction. The question whether a transaction was or was 
not usurious turning mainly on the intentions of the parties, 
the innocence or blameworthiness of dealings in which money 
was lent became rightfully a subject of determination for the 
Church, either by her casuists or in her courts. ^ 

The foregoing principles point towards a noble ideal, but by 
their ascetic exaggeration they worked in some directions as 
an impediment to industrial progress. Thus, whilst, with the 
increase of production, a greater division of labour and a larger 
employment of borrowed capital naturally followed, the laws 
on usury tended to hinder this expansion. Hence they were 
undermined by various exceptions, or evaded by fictitious 
transactions. These laws were in fact dictated by, and adapted 
to, early conditions — to a state of society in which money 
loans were commonly sought either with a view to wasteful 
pleasures or for the relief of such urgent distress as ought 
rather to have been the object of Christian beneficence. But 
they were quite unsuitod to a period in which capital was 
borrowed for the extension of enterprise and the employment 
of labour. The absolute theological spirit in this, as in other 
instances, could not admit the modification in rules of conduct 
demanded by a new social situation ; and vulgar good sense 
better understood what were the fundamental conditions of 
industrial life. 

When the intellectual activity previously repressed by the 
more urgent claims of social preoccupations tended to revive 
towards the close of the mediaeval period, the want of a 

^ Roscher, Geschichte der N.O. in DeutscMand, pp. 5, sqq. 



THE MIDDLE AGES. 29 

rational appreciation of the whole of human affairs was felt, 
and was temporarily met by the adoption of the results of the 
best Greek speculation. Hence we find in the writings of St. 
Thomas Aquinas the political and economic doctrines of 
Aristotle reproduced with a partial infusion of Christian 
elements. His adherence to his master's point of view is 
strikingly shown by the fact that he accepts (at least if he is 
the author of the De Regimine Principum) ^ the Aristotelian 
theory of slavery, though by the action of the forces of his 
own time the last relics of that institution were being elimi- 
nated from European society. 

This great change — the enfranchisement of the working 
classes — was the most important practical outcome of the 
Middle Ages. The first step in this movement was the trans- 
formation of slavery, properly so called, into serfdom. The 
latter was, by its nature, a transitory condition. The serf was 
bound to the soil, had fixed domestic relations, and partici- 
pated in the religious life of the society ; and the tendency of 
all his circumstances, as well as of the opinions and sentiments 
of the time, was in the direction of liberation. This issue 
was, indeed, not so speedily reached by the rural as by the 
urban workman. Already in the second phase serfdom is 
abolished in the cities and towns, whilst agricultural serfdom 
does not anywhere disappear before the third. The latter 
revolution is attributed by Adam Smith to the operation of 
selfish interests, that of the proprietor on the one hand, who 
discovered the superior productiveness of cultivation by free 
tenants, and that of the sovereign on the other, who, jealous 
of the great lords, encouraged the encroachments of the 
villeins on their authority. But that the Church deserves a 
share of the merit seems beyond doubt — moral impulses, as 
often happens, conspiring with political and economic motives. 
The serfs were treated best on the ecclesiastical estates, and 
the members of the priesthood, both by their doctrine and by 

^ On this question see Jourdain, " Philosophic de S. Thomas," vol. I; 
pp. 14 1-9, and 400. 



30 POLITICAL ECONOMY. 

tlieir situation since the ISTortliern conquests, were constituted 
patrons and guardians of the oppressed or suhject classes. 

Out of the liberation of the serfs rose the first lineaments 
of the hierarchical constitution of modern industry in the 
separation between the entrepreneurs and the workers. The 
personal enfranchisement of the latter, stimulating activity 
and developing initiative, led to accumulations, which were 
further promoted by the establishment of order and good 
government by the civic corporations which grew out of the 
enfranchisement. Thus an active capitalist class came into 
existence. It appeared first in commerce, the inhabitants of 
the trading cities importing expensive luxuries from foreign 
countries, or the improved manufactures of richer communities, 
for which the great proprietors gladly exchanged the raw pro- 
duce of their lands. In performing the office of carriers, too, 
between different countries, these cities had an increasing field 
for commercial enterprise. At a later period, as Adam Smith 
has shown, commerce promoted the growth of manufactures, 
which were either produced for foreign sale, or made from 
foreign materials, or imitated from the work of foreign artificers. 
But the first important development of handicrafts in modern 
Europe belongs to the fourteenth and fifteenth centuries, and 
the rise of manufacturing entrepreneurs is not conspicuous 
within the Middle Ages properly so called. Agriculture, of 
course, lags behind ; though the feudal lords tend to transform 
themselves into directors of agricultural enterprise, their habits 
and prejudices retard such a movement, and the advance of 
rural industry proceeds slowly. It does, however, proceed, 
partly by the stimulation arising from the desire to procure the 
finer objects of manufacture imported from abroad or produced 
by increased skill at home, partly by the expenditure on the 
land of capital amassed in the prosecution of urban industries. 

Some of the trade corporations in the cities appear to have 
been of great antiquity ; but it was in the thirteenth century 
that they rose to importance by being legally recognised and 
regulated. These corporations have been much too absolutely 



THE MIDDLE AGES. 31 

condemned by most of the economists, who insist on applying 
to the Middle Ages the ideas of the eigliteenth and nineteenth 
centuries. They were, it is true, unfitted for modern times, 
and it was necessary that they should disappear ; their exist- 
ence indeed was quite unduly prok)nged. But they were at 
first in several respects highly beneficial. They were a valu- 
able rallying-point for the new industrial forces, which were 
strengthened by the rise of the esprit de corps which they 
fostered. They improved technical skill by the precautions 
which were taken for the solidity and finished execution of 
the wares produced in each locality, and it was with a view 
to the advancement of the industrial arts that St. Louis 
undertook the better organisation of the trades of Paris. 
The corporations also encouraged good moral habits through 
the sort of spontaneous surveillance which they exercised, 
and they tended to develop the social sentiment within the 
limits of each profession, in times when a larger public spirit 
could 8ca«5eiy yet be looked for. 



CHAPTEE IV. 

MODERN TIMES: FIRST AND SECOND PHASES. 

The close of the Middle Ages, as Comte has shown, must be 
placed at the end, not of the fifteenth Lnt of the thirteenth 
century. The modern period, which then began, is filled by 
a development exhibiting three successive phases, and issuing 
in the state of things which characterises our own epoch. 

I. During the fourteenth and fifteenth centuries the 
Catholico-feudal system was breaking down by the mutual 
conflicts of its own official members, whilst the constituent 
elements of a new order were rising beneath it. On the 
practical side the antagonists matched against each other were 
the crown and the feudal cliiefs ; and these rival powers sought 
to strengthen themselves by forming alliances with the towns 
and the industrial forces they represented. The movements 
of this phase can scarcely be said to find an echo in any 
contemporary economic literature. 

II. In the second phase of the modern period, which opens 
with the beginning of the sixteenth century, the spontaneous 
collapse of the mediaeval structure is followed by a series of 
systematic assaults which still further disorganise it. During 
this phase the central temporal power, which has made a great 
advance in stability and resources, lays hold of the rising 
elements of manufactures and commerce, and seeks, whilst 
satisfying the popular enthusiasm for their promotion, to use 
them for political ends, and make them subserve its own 
strength and splendour by furnishing the treasure necessary 



MODERN TIMES. 35 

for military success. With this practical effort, and the social 
tendencies on which it rests, the ^lercantile school of political 
economy, which then ohtains a spontaneous ascendency, is in 
close relation. Whilst partially succeeding in the policy wo 
have indicated, the European Governments yet on tlie whole 
necessarily fail, their origin and nature disqualifying them f ( r 
the task of guiding the industrial movement ; and the dis- 
credit of the spiritual power, witli which most of them are 
confederate, further weakens and undermines them. 

III. In the last phase, which coincides approximately with the 
eighteenth century, the tendency to a completely new system, 
both temporal and spiritual, becomes decisively pronounced, 
first in the philosophy and general literature of the period, 
and then in the great French explosion. The universal 
critical doctrine, which had been announced by the Protes- 
tantism of the previous phase, and systematised in England 
towards the close of that phase, is propagated and popularised, 
especially by French writers. The spirit of individualism 
inherent in the doctrine was eminently adapted to the wants 
of the time, and the general favour with which the dogmas of 
the social contract and laisser faire were received indicated a 
just sentiment of the conditions proper to the contemporary 
situation of European societies. So long as a new coherent 
system of thought and life could not be introduced, what was 
to be desired was a large and active development of personal 
energy under no further control of the old social powers than 
would suffice to prevent anarchy. Governments were there- 
fore rightly called on to abandon any effective direction of the 
social movement, and, as far as possible, to restrict their 
intervention to the maintenance of material order. This 
policy was, from its nature, of temporary application only ; 
but the negative school, according to its ordinary spirit, 
erected what was merely a transitory and exceptional necessity 
into a permanent and normal law. The unanimous European 
movement towards the liberation of effort, which sometimes 
rose to the height of a public passion, had various sides, 

c 



34' POLITICAL ECONOMY. 

corresponding to the different aspects of thought and life ; 
and of tlie economic side the French physiocrats were the first 
theoretic representatives on the large scale, thongh the office 
they undertook was, both in its destructive and organic pro- 
vinces, more thoroughly and effectively done by Adam Smith, 
who ought to be regarded as continuing and completing their 
work. 

It must be admitted that with the whole modern move- 
ment serious moral evils were almost necessarily connected. 
The general discipline which the Middle Ages had sought to 
institute and had partially succeeded in establishing, though 
on precarious bases, having broken down, the sentiment of 
duty was weakened along with the spirit of ensemble which 
is its natural ally, and individualism in doctrine tended to 
encourage egoism in action. In the economic field this result 
is specially conspicuous. National selfishness and private 
cupidity increasingly dominate ; and the higher and lower 
industrial classes tend to separation and even to mutual 
hostility. The new elements — science and industry — which 
were gradually acquiring ascendency bore indeed in their 
bosom an ultimate discipline more efficacious and stable than 
that which had been dissolved ; but the final synthesis was 
long too remote, and too indeterminate in its nature, to be 
seen through the dispersive and seemingly incoherent growth 
of those elements. ISTow, however, that synthesis is becoming 
appreciable ; and it is the effort towards it, and towards the 
practical system to be founded on it, that gives its peculiar 
character to the period in which we live. And to this spon- 
taneous nisus of society corresponds, as we shall see, a new 
form of economic doctrine, in which it tends to be absorbed 
into general sociology and subordinated to morals. 

It will be the object of the following pages to verify and 
illustrate in detail the scheme here broadly indicated, and to 
point out the manner in which the respective features of the 
several successive modern phases find their counterpart and re- 
flection in the historical development of economic speculation. 



modern times: first phase. 35 

First Modern Phase. 

The first phase was marked, on the one hand, by the 
spontaneous decomposition of the mediaeval system, and, 
on the other, by the rise of several important elements of 
the new order. The spiritual power became less apt as well 
as less able to fulfil its moral office, and the social movement 
was more and more left to the irregular impulses of individual 
energy, often enlisted in the service of ambition and cupidity. 
Strong governmejits were formed, which served to maintain 
material order amidst the growing intellectual and moral 
disorder. The universal admission of the commons as an 
element in the political system showed the growing strength 
of the indu.-trial forces, as did also in ancther way the insur- 
rections of the working classes. The decisive prevalence of 
peaceful activity was indicated by the rise of the institution 
of paid armies — at first temporary, afterwards permanent — 
which prevented the interruption or distraction of labour by 
devoting a determinate minority of the population to martial 
operations and exercises. Manufactures became increasingly 
important; and in this branch of industry the distinction 
between the entrepreneur and the workers was first firmly 
established, whilst fixed relations between these were made 
possible by the restriction of military training and service 
to a sp{!cial profession. Navigation was facilitated by the 
use of the mariner's compass. The art of printing showed 
how the intellectual movement and the industrial develop- 
ment were destined to be brought into relation with each 
other and to work tu wards common ends. Public credit rose 
in Florence, Venice, and Genoa long before Holland and 
En-land attained any great financial importance. Just at 
the close of the phase, the discovery of America and of the 
new route to the Past, whilst revolutionising the course of 
trade, prepared the way f^r the establishment of colonies, 
which contributed powerfully to the growing preponderance 
of industrial life, and pointed to its ultimate universality. 



36 POLITICAL ECONOMY. 

It is doubtless due to the equivocal nature of this stage, 
standing between the mediaeval and the fully characterised 
modern period, that on the theoretic side we find nothing 
corresponding to such marvellous practical ferment and expan- 
sion. The general political doctrine of Aquinas was retained, 
with merely subordin:ite modifications. The only special 
economic question which seems to have received particular 
attention was that of the nature and functions of money, 
the importance of which began to be felt as payments in 
service or in kind were discontinued, and regular systems of 
taxation began to be introduced. 

Roscher,^ and after him Wolowski, have called attention 
to Nicole Oresme, who w^as teacher of Charles V., King of 
France, and died Bishop of Lisieux in 1382. Eosclier pro- 
nounces him a great economist. ^ His Tradatus de Originey 
Natura, Jure^ et Mutationihus Monetarum (reprinted by 
Wolowski, 1864) contains a tlieory of money which is almost 
entirely correct according to the views of the nineteenth century, 
and is stated with such brevity, clearness, and simplicity of 
language as show^ the work to be from the hand of a master. 



Second Modern Phase: Mercantile System. 

Throughout the first modern plmse tlie rise of the new 
social forces had been essentially spontaneous ; in the second 
they became the object of systematic encouragement on the 
part of Governments, which, now that the financial methods 
of the Middle Ages no longer sufficed, could not further their 
military and political ends by any other means than increased 
taxation, implying augmented wealth of the community. 
Industry thus became a permanent interest of European 
Governments, and even tended to become the principal object 
of their policy. In natural harmony with this state of facts, 

^ Comptes rendus de VAcudemie des Sciences morales et politiques, Jxii. 
2 Geschichte der N,0. in Deutschlandj p. 25. 



SECOND MODERN PHASE. 37 

the mercantile system arose and grew, attaining its highest 
development ahout the middle of the seventeenth century. 

The Mercantile doctrine, stated in its most extreme form, 
makes wealth and money identical, and regards it therefore as 
the great ohject of a community so to conduct its dealings 
with other nations as to attract to itself the largest possiljle 
share of the precious metals. Each country must seek to 
export the utmost possible quantity of its own manufactures, 
and to import as little as possible of those of other countries, 
receiving the difference of the two values in gold and silver. 
This difference is called the balance of trade, and the balance 
is favourable when more money is received than is paid. 
Governments must resort to all available expedients — prohibi- 
tion of, or high duties on, the importation of foreign wares, 
bounties on the export of home manufactures, restrictions on 
the export of the precious metals — for the purpose of securing 
such a balance. 

But this statement of the doctrine, though current in the 
text-books, does not represent correctly the views of all who 
must be classed as belonging to the Mercantile school. Many 
of the members of that school were much too clear-siglited to 
entertain the belief, which the modern student feels difficulty 
in supposing any class of thinkers to have professed, that 
wealth consists exclusively of gold and silver. The mercan- 
tilists may be best described, as Koscher^ has remarked, not 
by any definite economic theorem which they held in common, 
but by a set of theoretic tendencies, commonly found in com- 
bination, though severally prevailing in diiferent degrees in 
different minds. These tendencies may be enumerated as 
follows : — (i) Towards over-estimating the importance of 
possessing a large amount of the precious metals; (2) towards 
an undue exaltation (a) of foreign trade over domestic, and {b) 
of the industry which works up materials over that which 
provides them ; (3) towards attaching too high a value to a 
dense population as an element of national strength ; and (4) 
^ Geschichte der N.O. in Bcutschland, p. 228, sqq. 



38 POLITICAL ECONOMY. 

towards invoking the action of the state in furthering arti* 
iicially the attainment of the several ends thus proposed as 
desirable. 

If we consider the contemporary position of affairs in Western 
Europe, we shall have no difficulty in understanding how these 
tendencies would inevitably arise. The discoveries in the 
Xew World had led to a large development of the European 
currencies. The old feudal economy, founded principally on 
dealings in kind, had given way before the new '• money 
economy," and the dimensions of the latter were everywhere 
expanding. Circulation was becoming more rapid, distant 
communications more frequent, city life and movable pi'operty 
more important. The mercantilists were impressed by the 
fact that money is wealth sui generis^ that it is at all times in 
universal demand, and that it puts into the hands of its pos- 
sessor the power of acquiring all otlier commodities. The 
period, again, was marked by the formation of great states, with 
pow^erful Governments at their head. Tliese Governments 
required men and money for tlie maintenance of permanent 
armies, wdiicli, especially for the religious and Italian wars, 
were kept up on a great scale. Court expenses, too, were 
more lavish than ever before, and a larger number of civil 
officials was employed. The royal domains and dues were 
insufficient to meet tliese requirements, and taxation grew with 
the demands of the monarchies. Statesmen saw that for their 
own political ends industry must flourish. But manufactures 
make possible a denser population and a higher total value of 
expoits than agriculture ; they open a less limited and n.iore 
l^omptly extensible field to enterprise. Hence they became 
tne object of special Governmental favour and patronage, 
whilst agriculture fell comparatively into the background. 
The growth of manufactures reacted on com.m-orce, to which a 
new and mighty arena had been opened by the establishment 
of colonies. These were view^ed simply as estates to be worked 
for the advantage of the mother countries, and the aim of 
statesmen was to make the colonial trade a new source of 



SECOND MODERN PHASE. 39 

public revenue. Each nation, as a whole, working for its own 
power, and the greater ones for predominance, they entered 
into a competitive struggle in the economic no less than in the 
political field, success in the former being indeed, by the riders, 
regarded as instrumental to pre-eminence in the latter. A 
national economic interest came to exist, of whioh the Govern- 
ment made itself the representative head. States became a 
soit of artificial hothouses for the rearing of urhaa industries. 
Production was subjected to systematic regulation with the 
object of securing the goodness and cheapness of the exported 
articles, and so maintaining the place of the nation in foreign 
markets. The industrial control was exercised, in part directly 
by the state, but largely also through privileged corporations 
and trading companies. High duties on imports were resorted 
to, at first perhaps mainly for revenue, but afterwards in tl'9 
interest of national production. Commercial treaties were a 
principal object of diplomacy, the end in view being to exclude 
the competition of other nations in foreign markets, whilst in 
the home market as little room as possible was given for the 
introduction of anything but raw materials from abroad. The 
colonies were prohibited from trading with other European 
nations than the parent country, to which they supplied either 
the precious metals or raw produce purchased with home 
manufactures. It is evident that what is known as the mer- 
cantile doctrine was essentially the theoretic counterpart of the 
practical activities of the time, and that nations and Govern- 
ments were led to it, not by any form of scientific thought, 
but by the force of outward circumstance, and the observation 
of facts which lay on the surface. 

And yet, if we regard the question from the highest point 
of view of philosophic history, we must pronounce the uni- 
versal enthusiasm of this second modern phase for manufac- 
tures and commerce to have been essentially just, as leading 
the nations into the main avenues of general social develop- 
ment. If the thought of the period, instead of being impelled 
by contemporary circumstances, could have been guided by 



40 POLITICAL ECONOMY. 

sociological prevision, it must have entered witli zeal upon the 
same path which it empiricall}" selected. The organisation of 
agricultural industry could not at that period make any marked 
progress, for the direction of its operations was still in the 
hands of the feudal class, which could not in general really 
learn the habits of industrial life, or place itself in sufficient 
harmony with the workers on its domains. The industry of 
tlie towns had to precede that of the country, and the latter 
had to be developed mainly through the indirect action of the 
former. And it is plain that it was in the life of the manu- 
facturing proletariat, whose labours are necessarily the most 
continuous and the most social, that a systematic discipline 
could at a later period be first applied, to be afterwards ex- 
tended to the rural populations. 

That the efforts of Governments for the futherance of 
manufactures and commerce were really effective towards that 
end is admitted by Adam Smith, and cannot reasonably be 
doubted, though free trade doctrinaires have often denied it. 
Technical skill must have been promoted by their encourage- 
ments ; whilst new forms of national production were fostered 
by attracting workmen from other countries, and by lightening 
the burden of taxation on struggling industries. Communica- 
tion and transport by land and sea were more rapidly improved 
with a view to facilitate traffic; and, not the least important 
effect, the social dignity of the industrial professions was 
enhanced relatively to that of the classes before exclusively 
dominant. 

It has often been asked to whom the foundation of the 
mercantile system, in the region whether of thought or of 
practice, is to be attributed. But the questicm admits of no 
absolute answer. That mode of conceiving economic facts 
arises spontaneously in unscientific minds, and ideas suggested 
by it are to be found in the Greek and Latin writers. The 
policy which it dictates was, as we have shown, inspired by 
the situation of the European nations at the opening of the 
modern period. Such a policy had been already in some 



SECOND MODERN PHASE. 4I 

degree practised in the fourteenth and fifteenth centuries, thus 
preceding any formal exposition or defence of its speculative 
basis. At the commencement of the sixteentli century it began 
to exercise a ^videly extended influence. Charles Y. adopted 
it, and his example contributed much to its predominance. 
li9-^?-IX_YlII* ^^^ Elizabeth conformed their measures to it. 
The leading states soon entered on a universal competition, in 
which each power brought into play all its political and 
financial resources for the purpose of securing to itself manu- 
facturing and commercial preponderance. Through almost the 
whole of tlie seventeenth century the prize, so far as commerce 
was concerned, remained in the possession of Holland, Italy 
having lost her former ascendency by the opening of the new 
maritime routes, and by her political misfortunes, and Spain 
and Germany being depressed by protracted wars and internal 
dissensions. The admiring envy of Holland felt by English 
politicians and economists appears in such writers as Ealeigh, 
Mun, Child, and Temple ; ^ and how strongly the same 
spectacle acted on French policy is shown by a well-known 
letter of Colbert to M. de Pomponne,^ ambassador to the 
Dutch States. (Cromwell, by the Navigation Act, which 
destroyed the carrying trade of Holland and founded the 
English empire of the sea, and Colbert, by his whole economic 
policy, domestic and international, were the chief practical 
representatives of the mercantile system.) Erom the Litter 
great statesman the Italian publicist Mengotti gave to that 
system the name of Colbertismo ; but it would be an error to 
consider the French minister as having absolutely accepted 
its dogmas. He regarded his measures as temporary only, 
and spoke of protective duties as crutches by the help of whict 
manufacturers might learn to walk and then throw them away. 
The policy of exclusions had been previously pursued by Sully, 
partly with a view to the accumulation of a royal treasure, but 

^ Roscher, GeschicJUe der N.O, in Deuischland, p. 227. 
^ Clement, Eistoirede la vie et de V administration de Colbert {1S46), 
p. 134. 



42 POLITICAL ECONOMY. 

cliiefly from his special enthusiasm for agriculture, and his 
dislike of the introduction of foreign luxuries as detrimental 
to the national character. Colbert's tariif of 1664 not merely 
simplified but considerably reduced the existing duties j tho 
tariff of 1667 indeed increased them, but that was really a 
political measure directed against the Dutch. It seems certain 
that France owed in a large measure to his policy the vast 
development of trade and manufactures which so mucli 
impressed the imagination of contemporary Europe, and of 
which we hear so much from English writers of the time of 
Petty. But this policy had also undeniably its dark side. 
Industry was forced by such systematic regulation to follow 
invariable courses, instead of adapting itself to changing 
tastes and popular demand. Xor was it free to simplify the 
processes of production, or to introduce increased division of 
labour and improved ap})liances. Spontaneity, initiation, and 
invention were repressed or discouraged, and thus ulterioi 
sacrificed in a great measure to immediate r(>sults. The more 
enlightened statesmen, and Colbert in particular, endeavoured, 
it is true, to minimise these disadvantages by procuring, often 
at great expense, and con:imunicating to the trades through 
inspectors nominated by the Government, information respect- 
ing improved processes employed elsewhere in the several 
arts ; but this, though in some degree a real, was certainly on 
the whole, and in the long run, an insufficient compensation. 

We must not expect from the writers of this stage any 
exposition of political economy as a whole ; the publications 
which appeared were for the most part evoked by special 
exigencies, and related to particular questions, usually of a 
practical kind, which arose out of the great movements of the 
time. They were in fact of the nature of counsels to the 
Governments of states, pointing out how best they miglit 
develop the productive powers at their disposal and increase 
the resources of their respective countries. They are con- 
ceived (as List claims for them) strictly in the spirit of 
national economy, and cosmopolitanism is essentially foreign 



SECOND MODERN PHASE. 43 

to them. On these monographs the mercantile theory some- 
times had little influence, the problems discussed not involving 
its tenets. But it must in most cases be taken to be the 
scheme of fundamental doctrine (so far as it was ever entitled 
to such a description) which in the last resort underlies the 
writer's conclusions. 

The rise of prices following on the discovery of the Ameri- 
can mines was one of the subjects which first attracted the 
attention of theorists. This rise brought about a great and 
gradually increasing disturbance of existing economic relations, 
and so produced much perplexity and anxiety, which were all 
the more felt because the cause of the change was not under- 
stood. To this was added the loss and inconvenience arising 
from the debasement of the currency often resorted to by 
sovereigns as well as by republican states. Italy suffered 
most from this latter abuse, which was multiplied by her 
political divisions. It was this evil which called forth the 
work of Count Gasparo Scaruffi {Discorso soj)i a le monete e 
della vera proporzione fra Voro e Vargento, 1582). In this he 
put forward the bold idea of a universal money, everywhere 
identical in size, shape, composition, and designation. The 
project was, of course, premature, and was not adopted even 
by the Italian princes to whom the author specially appealed ; 
but the reform is one which, doubtless, the future will see 
realised. Gian Donato Turbolo, master of the Neapolitan 
mint, in his Dtscorsi e Relazioni, 16 2 g, protested against any 
tampering w^th the currency. Another treatise relating to 
the subject of money was that of the riorentinc Bernardo 
Davanzati, otherwise known as the able translator of Tacitus, 
Lezioni dells Monete^ 1588. It is a slight and somewhat 
superficial production, only remarkable as written with con- 
ciseness and elegance of style. 

A French writer who dealt with the question of money, 
but from a different point of view, was Jean Bodin. In his 
Reponse aux paradoxes de M, Malestroit toucliant Venclierisse- 
ment de toutes les choses et des rnojiuaies, 1568, and in his 



44 POLITICAL ECONOMY. 

Discours sur le reliaiissement et la diminution des monnaies^ 
1578, lie showed a more rational appreciation than many cf his 
contemporaries of the causes of the revolution in prices, and 
the relation of the variations in money to the market values 
of wares in general as well as to the wages of labour. He saw 
that the amount of money in circulation did not constitute 
the wealth of the community, and that the prohibition of the 
export of the precious metals was useless, because rendered 
inoperative by the necessities of trade. Bodin is no incon- 
siderable figure in the literary history of the epoch, and did 
not confine his attention to economic problems ; in his Six 
livres de la RepulUque, about 1576, he studies the general 
conditions of the prosperity and stability of states. In har- 
mony with the conditions of his age, he approves of absolute 
Governments as the most competent to ensure the security 
and wellbeing of their subjects. He enters into an elaborate 
defence of individual property against Plato and More, rather 
perhaps because the scheme of his work required the treatment 
of that theme than because it was practically urgent in his 
day, when the excesses of the Anabaptists had produced a 
strong feeling against communistic doctrines. He is under 
the general influence of the mercantilist views, and approves 
of energetic Governmental interference in industrial matters, 
of high taxes on foreign manufactures and low duties on raw 
materials and articles of food, and attaches great importance 
to a dense population. But he is not a blind follower of the 
system ; he wishes for unlimited freedom of trade in many 
cases ; and he is in advance of his more eminent contemporary 
Montaigne ^ in perceiving that the gain of one nation is not 
necessarily the loss of another. To the public finances, which 
he calls the sinews of the state, he devotes much attention, 
and insists on the duties of the Government in respect to 
the right adjustment of taxation. In general he deserves 
the praise of steadily keeping in view the higher aims and 

^ " II ne se faict aucun profit qu'au dommage d'autruy.'* £s8ais, liv. 
I, chap. 21. 



SECOND MODERN PHASE. 45 

interests of society in connection with the regulation and 
development of its material life. 

Correct views as to the cause of the general rise of prices 
are also put forward by the English writer, W. S. (William 
Stafford), in his Briefe Conceipte of English Polici/y published 
in 1 581, and dedicated to Queen Elizabeth. It is in the form 
of a dialogue, and is written with liveliness and spirit. The 
author seems to have been acquainted with the writings of 
Bodin. He has just ideas as to the nature of money, and 
fully understands the evils arising from a debased coinage. 
He describes in detail the way in which the several interests 
in the country had been affected by such debasement in 
previous reigns, as well as by the cliange in the value of the 
precious metals. The great popular grievance of his day, the 
conversion of arable land into pasture, he attributes chiefly to 
the restrictions on the export of corn, which he de.<ires to see 
abolished. But in regard to manufactures he is at the same 
point of view with the later mercantilists, and proposes tlie 
exclusion of all foreign wares which might as well be provided 
at home, and the prohibition of the export of raw materials 
intended to be worked up abroad. 

Out of the question of money, too, arose the first remarkable 
German production on political economy which had an original 
national character and addressed the public in the native 
tongue. Duke George of the Ernestine Saxon line was in- 
clined (1530) to introduce a debasement of the currency. A 
pamphlet, Gemeine Stymmen von der Milntze, was published 
in opposition to this proceeding, under the auspices of the 
Albertine branch, whose policy was sounder in the economic 
sphere no less than in that of ecclesiastical affairs. A reply 
appeared justifying the Ernestine project. This was followed 
by a rejoinder from the Albertine side. The Ernestine pam- 
phlet is described by Eoscher as ill-written, obscure, inflated, 
and, as might be expected from the thesis it maintained, 
sophistical. But it is interesting as containing a statement of 
the fundamental principles of the mercantile system more than 



46 POLITICAL ECONOMY. 

one hundred years Lefore the publication of Mun's book, and 
forty-six before that of Bodin's Six livres de la IlepubUque. 
The Albertine tracts, according to Eoscher, exhibit such sound 
views of the conditions and evidences of national wealth, of 
the nature of money and trade, and of the rights and duties 
of Governments in relation to economic action, that he regards 
the unknown author as entitled to a place beside Raleigh and 
the other English ''colonial-theorists" of the end of the six- 
teenth and beginning of the seventeenth century. 

In connection with the same subject of money we meet the 
great name of Copernicus. His treatise De monetoe cudendoe 
rafione, 1526 (first printed in 18 16), was written by order of 
King Sigismund L, and is an exposition of the princii)les on 
which it was proposed to reform the currency of the Prussian 
provinces of Poland. It advocates unity of the monetary 
system throughout the entire state, with strict integrity in the 
quality of the coin, and the charge of a seigniorage sufficient 
to cover the expenses of mintage. 

Antonio Serra is regarded by some as the creator of modern 
political economy. He was a native of Cosenza in Calabria. 
His Breve Trattato delle cause die possono fare ahhondare li 
regni d'oro e d'argento dove mm sono miniere, 16 13, was 
written during his imprisonment, which is believed to have 
been due to his having taken part in the conspiracy of 
Campanella for the liberation of Naples from the Spanish 
yoke and the establishment of a republican government. This 
work, long overlooked, was brought into notice in the follow- 
ing century by Galiani and others. Its title alone would 
sufficiently indicate that the author had adopted the principles 
of the mercantile system, and in fact in this treatise the 
essential doctrines of that system are expounded in a tolerably 
formal and consecutive manner. He strongly insists on the 
superiority of manufactures over agriculture as a source of 
national wealth, and uses in support of this view the pros- 
perity of Genoa, Florence, and Venice, as contrasted with the 
depressed condition of Kaplcs. With larger insight than 



SECOND MODERN PHASE. 



47 



many of the mercantilists exhibit, he points out the import- 
ance, towards the acquisition of wealtli, not alone of favourable 
external conditions, but of energetic character and industrious 
habits in a population, as ^vell as of a stable government and 
a good administration of the laws. 

The first systematic treatise on our science which proceeded 
from a French author w^as the Traite de VJ^conomie Politique, 
published by Montchretien de AVatteville (or Yasteville) ^ in 
1615. The use of the title, says Roscher, now for the first 
time given to the science, w^as in itself an important service, 
since even Bacon understood by *'Economia" only the theory 
of domestic management. The general tendencies and aims 
of the period are seen in the fact that this treatise, notwith- 
standing the comprehensive name it bears, does not deal with 
agriculture at all, but only wdth the mechanical arts, navigation, 
commerce, and public finance. The author is filled with the 
then dominant enthusiasm for foreign trade and colonies. 
He advocates the control by princes of the industry of their 
subjects, and condemns the too great freedom, which, in his 
opinion to their ow^n detriment, the Governments of Spain, 
Portugal, and Holland had given to trade. His book may 
be regarded as a formal exposition of the principles of the 
mercantile system for the use of Frenchmen. 

A similar office was performed in England by Thomas Mun. 
In his two works, A Discourse of Trade from England unto 
the East Indies, 2nd ed., 1621, and especially in England's 
Treasure hij Foreign Trade^ 1664 (posthumous), we have for 
the first time a clear and systematic statement of the theory 
of the balance of trade, as vrell as of the means by which, 
according to the author's view, a favourable balance could be 
secured for England. The great object of the economic policy 
of a state, according to him, should be so to manage its export 

^ Montchretien, having fomented the rebellion in Normandy in 162 1, 
was slain, with a few followers, by Claude Turgot, lord of Les Tourailles, 
who belonged to the elder branch of the noble house from which the 
great Turgot was descended. 



48 POLITICAL ECONOMY. 

of manufactures, its direct and carrying trade, and its customs 
duties, as to attract to itself money from abroad. He waa^ 
however, opposed to the prohibition of the export of the 
precious metals in exchange for foreign wares, but on the 
ground, fully according with his general principles, that those 
wares might afterwards be re-exported and might then bring 
back more treasure than had been originally expended in their 
purchase ; the first export of money might be, as he said, the 
seed-time, of which the ultimate receipt of a larger amount 
would be the harvest.^ He saw, too, that it is inexpedient 
to have too much money circulating in a country", as this 
enhances the prices of commodities, and so makes them less 
saleable to foreigners, but he is favourable to the formation 
and maintenance of a state treasure.^ 

One of the most remarkable of the moderate mercantilists 
was Sir Josiah Child {Brief Observations concerning Trade and 
the Interest of Money ^ 1668, and A New Discourse of Trade^ 
1668 and 1690). He was one of those who held up Holland 
as a model for the imitation of his fellow-countrymen. He , 
is strongly impressed with the importance for national wealth 
and wellbeing of a low rate of interest, which he says is to 
commerce and agriculture what the soul is to the body, and 
which he held to be the ^* causa causans of all the other causes 
of the riches of the Dutch people.^' Instead of regarding 
such low rate as dependent on determinate conditions, which 
should be allowed to evolve themselves spontaneously, he 
thinks it should be created and maintained by public authority. 
Child, whilst adhering to the doctrine of the balance of 
trade, observes that a people cannot always sell to foreigners 

^ On Mun's doctrines, see Smith's Wealth of Nations, Bk. iv. chap. L 
* Writers of less importance who followed the same direction were 
Sir Thomas Culpeper {A Tract against the High Bate of Usury^ 1623, 
and Useful RemarTc on High Interest, 1641), Sir Dudley Digges (Defence 
of Trade, 161 5), G. Malynes [Consuetudo vel Lex Mercatoria, 1622), 
E. Misselden (Circle of Commerce^ 1623), Samuel Fortrey (England'9 
Interest and Improvement f 166'^ Q,ndi 1673), and John Pollexf en (^'n^^Twl 
and India inctmmient in their Manufactures, 1697). 



SECOND MODERN PHASE. 49 

without ever buying from them, and denies that the export 
of the precious metals is necessarily detrimentah He has the 
ordinary mercantilist partiality for a numerous population. 
He advocates the reservation by the mother country of the 
sole right of trade with her colonies, and, under certain 
limitations, the formation of privileged trading companies. 
As to the Navigation Act, he takes up a position not unlike 
that afterwards occupied by Adam Smith, regarding that 
measure much more favourably from the poHtical than from 
the economic point of view. It will be seen that he is some- 
what eclectic in his opinions ; but he cannot properly be re- 
garded, though some have attributed to him that character, as 
a precursor of the free-trade school of the eighteenth century. 

Two other eclectics may be here mentioned, in whom just 
views are mingled with mercantilist prejudices — Sir William 
Temple and Charles Davenant. The former in his Observations 
upon the United Provinces of the Netherlands^ 1672, and his 
Essay on the Trade of Ireland^ 1673, ^^^ many excellent 
remarks on fundamental economic principles, as on the func- 
tions of labour and of saving in the production of national 
w^ealth ; but he is infected with the errors of the theory of the 
balance of trade. He follows the lead of Ealeigh and Child 
in urging his fellow-countrymen to imitate the example of the 
Dutch in their economic policy — advice which in his case was 
founded on his observations during a lengthened residence in 
Holland as ambassador to the States. Davenant in his Essay 
on the East-India Trade, 1696-97, Essay on the Probable 
Ways of making the People Gainers in the Balance of Trade, 
1699, &c., also takes up an eclectic position, combining some 
correct views on wealth and money with mercantilist notions 
on trade, and recommending Governmental restrictions on 
colonial commerce as strongly as he advocates freedom of 
exchange at home. 

Whilst the mercantile system represented the prevalent form 
of economic thought in the seventeenth century, and was alone 
dominant in the region of practical statesmanship, there was 

D 



so POLITICAL ECONOMY. 

growing up, side by side with it, a body of opinion, different 
and indeed hostile in character, which was destined ultimately 
to drive it from the field. The new ideas were first developed 
in England, though it was in France that in the following 
contury they took hold of the public mind, and became a 
power in politics. That they should first show themselves 
here, and afterwards be extended, applied, and propagated 
throughout Europe by French writers, belongs to the order 
of things according to which the general negative doctrine in 
morals and politics, undoubtedly of English origin, found its 
chief home in France, and was thence diffused in widening 
circles through the civilised world. In England this move- 
ment of economic thought took the shape mainly of individual 
criticism of the prevalent doctrines, founded on a truer analysis 
of facts and conceptions ; in France it was penetrated with a 
powerful social sentiment, furnished the creed of a party, and 
inspired a protest against institutions and an urgent demand 
for practical reform. 

Eegarded from the theoretic side, the characteristic features 
of the new direction were the following. The view of at least 
the extreme mercantilists that national wealth depends on the 
accumulation of the precious metals is proved to be false, and 
the gifts of nature and the labour of man are shown to be its 
real sources. The exaggerated estimate of the importance of 
foreign commerce is reduced, and attention is once more turned 
to agriculture and the conditions of its successful prosecution. 
On the side of practical policy, a so-called favourable balance 
of trade is seen not to be the true object of a nation's or a 
statesman's efi'orts, but the procuring for the whole population 
in the fullest measure the enjoyment of the necessaries and 
conveniences of life. And — w^hat more than anything else 
contrasts the new system with the old — the elaborate appa- 
ratus of prohibitions, protective duties, bounties, monopolies, 
and privileged corporations, which the European Governments 
had created in the supposed interests of manufactures and 
trade, is denounced or deprecated as more an impediment than 



SECOND MODERN PHASE. 51 

a furtherance, and the freedom of industry is insisted on aa 
the one thing needful. This circle of ideas, of course, emerges 
only gradually, and its earliest representatives in economic 
literature in general apprehend it imperfectly and advocate it 
with reserve ; but it rises steadily in importance, being more 
and more favoured by the highest minds, and finding an in- 
creasing body of supporters amongst the intelligent public. 

Some occasional traits of an economic scheme in harmony 
with these new tendencies are to be found in the De Give 
and Leviathan of Hobbes. But the efficacy of that great 
thinker lay rather in the general philosophic field; and by sys- 
tematising, for the first time, the whole negative doctrine, he 
gave a powerful impulse towards the demolition of the exist- 
ing social order, which was destined, as we shall see, to have 
momentous consequences in the economic no less than in the 
strictly political department of things. 

A writer of no such extended range, but of much sagacity 
and good sense, was Sir William Petty, author of a number 
of pieces containing germs of a sound economic doctrine. A 
leading thought in his writings is that ^* labour is the father 
and active principle of wealth, lands are the mother." He 
divides a population into two classes, the productive and the 
unproductive, according as they are or are not occupied in 
producing useful material things. The value of any com- 
modity depends, lie says, anticipating Eicardo, on the amount 
of labour necessary for its production. He is desirous of 
obtaining a universal measure of value, and chooses as his 
unit the average food of the cheapest kind required for a man's 
daily sustenance. He understands the nature of the rent of 
land as the excess of tlie price of its produce over the cost of 
production. He disapproves of the attempt to fix by autho- 
rity a maximum rate of interest, and is generally opposed to 
Governmental interference with the course of industry. He 
sees that a country requires for its exchanges a definite 
quantity of money and may have too much of it, and con- 
demns the prohibition of its exportation. He holds that one 



52 POLITICAL ECONOMY. 

only of the precious metals must be the foundation of the 
currency, the other circulating as an ordinary article of" mer- 
chandise. Petty's name is specially associated with the pro* 
gress of statistics, Avith which lie was much occupied, and 
which lie called by the name of political arithmetic. Ptelying 
on the results of such inquiries, he set himself strongly against 
the opinion which was maintained by the author of Britannia 
Languens (1680), Eortrey, Eoger Coke, and other writers, that 
the prosperity of England was on the decline. 

The most thorough-going and emphatic assertion of the free- 
trade doctrine against the system of prohibitions, which had 
gained strength by the Eevolution, was contained in Sir 
Dudley IS'orth's Discourses upon Trade^ 1691. He shows 
that wealth may exist independently of gold or silver, its 
source being human industry, applied either to the cultivation 
of the soil or to manufactures. The precious metals, however, 
are one element of national wealth, and perform highly im- 
portant offices. Money may exist in excess, as well as in 
defect, in a country ; and the quantity of it required for the 
purposes of trade will vary with circumstances ; its ebb and 
flow will regulate themselves spontaneously. It is a mistake 
to suppose that stagnation of trade arises from want of money ; 
it must arise either from a glut of the home market, or from 
a disturbance of foreign commerce, or from diminished con- 
sumption caused by poverty. The export of money in the 
course of traffic, instead of diminishing, increases the national 
wealth, trade being only an exchange of superfluities. Nation? 
are economically related to the world just in the same way as 
cities to the state or as families to the city. North emphasises 
more than his predecessors the value of the home trade. With 
respect to the interest of capital, he maintains that it depends, 
like the price of any commodity, on the proportion of demand 
and supply, and that a low rate is a result of the relative 
increase of capital, and cannot be brought about by arbitrary 
regulations, as had been proposed by Child and others. In 
arguing the question of free trade, he urges that individuals 



SECOND MODERN PHASE. 53 

often take their private interest as the measure of good and 
evil, and would for its sake debar others from their equal right 
of buying and selling, but that every advantage given to one 
interest or branch of trade over another is injurious to the 
public. Ko trade is unprofitable to the public ; if it were, it 
would be given up ; when trades thrive, so does the public, 
of which they form a part. Prices must determine themselves, 
and cannot be fixed by law ; and all forcible interference with 
them does harm instead of good. 'No people can become rich 
by state regulations, — only by peace, industry, freedom, and 
unimpeded economic activity. It will be seen how closely 
North's view of things approaches to that embodied some 
eighty years later in Adam Smith's great work.^ 

Locke is represented by Eoscher as, along with Petty and 
Kofth, making up the "triumvirate" of eminent British 
economists of this period who laid the foundations of a new 
and more rational doctrine than that of the mercantilists. 
But this view of his claims seems capable of being accepted 
only with considerable deductions. His specially economic 
writings are Considerations of the lowering of Interest and 
raising the value of Money, 1691, and Further Considerations, 
1695. Though Leibnitz declared with respect to these treatises 
that nothing more solid or intelligent could be said on their 
subject, it is difiScult absohitely to adopt that verdict. Locke's 
spirit of sober observation and patient analysis led him indeed 
to some just conclusions ; and he is entitled to the credit of 
having energetically resisted the debasement of the currency, 
which was then recommended by some who were held to be 
eminent practical authorities. But he falls into errors which 
sliow that he had not by any means completely emancipated 
himself from the ideas of the mercantile system. He attaches 
far too much importance to money as such. He says expressly 
that riches consist in a plenty of gold and silver, that is, as he 

1 Yet M. Eugene Daire asserts {(Euvresde Targot, i. 322) that "Hume 
et Tucker sont les deux premiers ecrivains qui se soient elev^s, en Angle- 
terre, au-dessus des theories du syst^ine mercantile." 



54 POLITICAL ECONOMY. 

explains, in liaving more in proportion of those metals than 
the rest of tlie world or than our neighhours. " In a country 
not furniished with mines, there are but two ways of growing 
rich, either conquest or commerce." Hence he accepts the 
doctrine of the balance of trade. He shows that the rate of 
interest can no more be fixed by law than the rent of houses 
or the hire of ships, and opposes Child's demand for legisla- 
tive interference Avith it. But he erroneously attributed the 
fall of the rate which had taken place generally in Europe to 
the increase of the quantity of gold and silver by the discovery 
of the American mines. He sets too absolute a value on a 
numerous population, in this point agreeing with Petty. On 
wages he ob.^erves that the rate must be such as to cover the 
indispensable wants of the labourer ; when the piice of sub- 
sistence rise?, wages must rise in a like ratio, or the working 
population must come on the poor rates. The fall of the rent 
of land he regards as a sure sign of the decline of national 
wealth. " Taxes, however contrived, and out of whose hands 
soever immediately taken, do, in a country where their great 
fund is in land, for the most part terminate upon land." In 
this last proposition we see a foreshadowing of the impot 
unique of the pliysiocrats. Whatever may have been Locke'a 
direct economic services, his principal importance, like that of 
Hobbes, lies in his general philosophic and political principles, 
whicli powerfully affected French and indeed European thought, 
exciting a spiiit of opposition to arbitrary power, and laying the 
foundation of the doctrine developed in the Gontrat Social} 

^ Minor English writers who followed the new economic direction 
were Lewis Roberts, Treaaiire of Trafficlc, 1641 ; Rice Yanghan, DUcavrs^ 
of Coin and Coinage, 1675 5 Nicholas Barbon, Discourse conceiming Cvin* 
ing the new money lighter, 1696, in which some of Locke's errors were 
pointed out ; and the author of an anonymous book entitled Consideixi" 
tions on the East India Trade, 1701. Practical questions much debated 
at this period were those connected with banking, on which a lengthened 
controversy took place, S. Lamb, W. Potter, F. Cradocke, M. Lew^is, 
M. Godfrey, R. Murray. H. Chamberlen, and W. Paterson, founder of 
the Bank <>f Ergland (1694V producing many paniphlets on the subject ; 
and the manngement of the poor, which was treated by Locke, Sil 
Matthew Hale, R. Hiiines, T. Firmin, and Withers. 



CHAPTER V. 

THIRD MODERN PHASE: SYSTEM OF NATURAL 
LIBERTY. 

The changes introduced during the third phase in the in- 
ternal organisation of the industrial world were (i) the more 
complete separation of banking from general commerce, and 
the wider extension of its operations, especially through the 
system of public credit; and (2) the great development of the 
use of machinery in production. The latter did not become 
very prominent during the first half of the eighteenth century. 
Whilst tending to promote the dignity of the working classes by 
relieving them from degrading and exhausting physical labour, 
it widened the gulf between them and the capitalist employers. 
It thus became plain that for the definitive constitution of in- 
dustry a moral reform was the necessary preliminary comlition. 
With respect to the political relations of industry, a remark- 
able inversion now showed itself. The systematic encourage- 
ments which the European Governments had extended to it 
in the preceding phase had been prompted by their desire to 
use it as an instrument for achieving the military superiority 
which was the great end of their policy. iN'ow, on the con- 
trary, the military spirit subordinated itself to the industrial, 
and the armies and the diplomacy of governments were placed 
at the service of commerce. The wars which filled a large 
part of the eighteenth century were essentially Commercial 
wars, arising out of the effort to sustain or extend the colonial 
establishments founded in the previous phase, or to deprive 
rival nations of the industrial advanta^^es connected with the 



56 POLITICAL ECONOMY. 

possession of such establishments. This change of attitude, 
notwithstanding its deplorable tendency to foster international 
enmities and jealousies, marked a real and important progress 
by pointing to industrial activity as the one permanent 
practical destination of modern societies. 

But, whilst by this sort of action furthering the ascendency 
of the new forces, the ruling powers, both in England and 
France, betrayed the alarm they felt at the subversive ten- 
dencies which appeared inherent in the modern movement by 
taking up in their domestic policy an attitude of resistance. 
Reaction became triumphant in France during the latter half 
of the reign of Louis XIV. under the disastrous influence of 
Madame de Maintenon. In England, after the transaction of 
1688, by which the Government was consolidated on the 
double basis of aristocratic power and official orthodox}'', the 
state policy became not so much retrograde as stationary, 
industrial conquest being put forward to satisfy the middle 
class and wean it from the pursuit of a social renovation. 
In both countries there was for some time a noticeable check 
in the intellectual development, and Reseller and others have 
observed that, in economic studies particularly, the first three 
decades of the eighteenth century were a period of general 
stagnation, eclecticism for the most part taking the place of 
originality. The movement was, however, soon to be resumed, 
but with an altered and more formidable character. The 
negative doctrine, w^hich had risen and taken a definite form 
in England, was difi'used and popularised in France, where it 
became evident, even before the decisive explosion, that the 
only possible issue lay in a radical social transformation. 
The partial schools of Voltaire and Rousseau in difi'erent ways 
led up to a violent crisis, whilst taking little thought of the 
conditions of a system which could replace the old ; but the 
more complete and organic school, of which Diderot k the 
best representative, looked through freedom to a thorough 
reorganisation. Its constructive aim is shown by the design 
of the Encyclo;pedie, — a project, however, which could have 



SYSTEM OF NATURAL LIBERTY. 57 

only a temporary success, because no real synthesis was forth- 
coniing, and this joint production of minds often divergent 
could possess no more than an external unity. It was wdth 
this great school tliat the physiocrats were specially connected ; 
and, in common with its other members, whilst pushing 
towards an entire change of the existing system, they yet 
would gladly have avoided political demolition through the 
exercise of a royal dictatorship, or contemplated it only as the 
necessary condition of a new and better order of things. But, 
though marked off by sucli tendencies from the purely revo- 
lutionary sects, their method and fundamental ideas were 
negative, resting, as they did, essentially on the basis of the 
jus naturoe. We shall follow in detail these French develop- 
ments in their special relation to economic science, and after- 
wards notice the corresponding movements in other European 
countries which showed themselves before the appearance of 
Adam Smith, or were at least unaffected by his influence. 

Before Adam Smith. 

France, 

The more liberal, as well as more rational, principles put 
forward by the English thinkers of the new type began, early 
in the eighteenth century, to find an echo in France, where 
the clearer and more vigorous intellects were prepared for 
their reception by a sense of the great evils which exaggerated 
mercantilism, serving as instrument of political ambition, had 
produced in that country. The impoverished condition of 
the agricultural population, the oppressive weight and unequal 
imposition of taxation, and the unsound state of the public 
finances had produced a general feeling of disquiet, and led 
several distinguished writers to protest strongly against the 
policy of Colbert and to demand a complete reform) 

The most important amongst them w^as Pierre Boisguillebert, 
whose whole life was devoted to these controversies. In his 
statistical writings {Detail de la France sous le regne ^resenif 



58 POLITICAL ECONOMY. 

1697 ; Factum de la France^ 1707)? ^^^ brings out in gloomy 
colours the dark side of tlie age of Louis XIV., and in his 
theoretic works {Traiie de la nature et da commerce des 
grains; Dissertations sur la nature des ricliesses de V argent 
et des tributs ; and Essai sur la rarete de V argent) he 
appears as an earnest, even passionate, antagonist of the mer- 
cantile school. He insists again and again on the fact that 
national wealth does not consist in gold and silver, but in 
useful things, foremost among which are the products of agri- 
culture. He even goes so far as to speak of '* argent criminel," 
which from being the slave of trade, as it ought to be, had 
become its tyrant. He sets the *' genuinely French Sully'* 
far above the "Italianising Colbert," and condemns all arbi- 
trary regulations affecting either foreign or internal commerce, 
especially as regards the corn trade, j^ational wealth does 
not depend on Governments, whose interference does more 
harm than good ; the natural laws of the economic order of 
things cannot be violated or neglected w^ith impunity ; the 
interests of the several classes of society in a system of free- 
dom are identical, and those of individuals coincide with that 
of the state. A similar solidarity exists between different 
nations ; in their economic dealings they are related to the 
world as individual towns to a nation, and not merely plenty, 
but peace and harmony, will result from their unfettered 
intercourse. Men he divides into tw^o classes — those who do 
nothing and enjoy everything, and those who labour from 
morning to night often without earning a bare subsistence ; 
the latter he would favour in every way. Here we catch the 
breath of popular sympatliy which fills the social atmos[)here of 
the eighteenth century. He dwells with special emphasis on 
the claims of agriculture, which had in France fallen into un- 
merited neglect, and with a view to its improvement calls for 
a reform in taxation. He would replace indirect taxes by 
taxes on income, and would restore the payment of taxes in 
kind, with the object of securing equality of burden and 
eliminating every element* of the arbitrary. He has some 



SYSTEM OF NATURAL LIBERTY. 59 

interesting views of a general character : thus he approximates 
to a correct conception of agricultural rent, and he points to 
the order in which human wants follow each other, — those 
of necessity, convenience, comfort, superfluity, and ostentation 
succeeding in the order named, and ceasing in the inverse 
order to be felt as wealth decreases. The depreciating tone 
in which Yoltaire speaks of Boisguillebert (Siede de Louis 
JlIV., chap. 30) is certainly not justified ; he had a great 
economic talent, and his writings contain important germs of 
truth. (But he appears to have exerted little influence, theo- 
retical or practical, in his own time. 

The same general line of thought was followed by Marshal 
Vauban (1633-1707) in his economic tracts, especially that 
bearing the title of Projet dune dixme lioyale, 1707, which 
Avas suppressed by the authorities, and lost for him the favour 
of his sovereign, but has added lustre to his name in the 
judgment of posterity. He is deeply impressed with the 
deplorable condition of the working classes of France in his 
day. He urges that the aim of the Government should be 
the welfare of all orders of the community; that all are 
entitled to like favour and furtherance ; that the often despised 
and wronged lower class is the basis of the social organisation ; 
that labour is the foundation of all wealth, and agriculture 
the most important species of labour; that the most essential 
condition of successful industry is freedom ; and that all un- 
necessary or excessive restrictions on manufactures and com- 
merce should be swept away. He protests in particular against 
the inequalities of taxation, and the exemptions and privileges 
enjoyed by the higher ranks. With the exception of some 
duties on consumption he would abolish all the existing taxes, 
and substitute for them a single tax on income and land, 
impartially applied to all classes, which he describes under 
the name of "Dixme Eoyale," that is to say, a tenth in kind 
of all agricultural produce, and a tenth of money income 
chargeable on manufacturers and traders.^ 

^ An English translation of the Dixme Royale was published in 1708, 



6o POLITICAL ECONOMY. 

The liberal and humane spirit of Fenelon led him to aspiw 
after freedom of commerce with foreign nations, and to preach 
the doctrine that the true superiority of one state over anothei 
lies in the number indeed, but also in the morality, in- 
telligence, and industrious habits of its population. The 
Telemaque, in which these views were presented in an 
attractive form, was welcomed and read amongst all ranks and 
classes, and was thus an effective organ for the propagation of 
opinion. 

After these writers there is a marked blank in the field of 
French economic thought, broken only by the Reflexions 
Politiqiies sur les Finances et le Commerce (1738) of Dutot, 
a pupil of Law, and the semi-mercantilist Essais PoUtiquea 
sur le Commerce (1731) of M61on, till we come to the great 
name of jNIontesquieu. The Esprit des Lois, so far as it 
deals with economic subjects, is written upon the whole from 
a point of view adverse to the mercantile system, especially in 
his treatment of money, though in his observations on colonies 
and elsewhere he falls in with the ideas of that system. His 
immortal service, however, was not rendered by any special 
research, but by his enforcement of the doctrine of natural 
laws regulating social no less than physical phenomena. 
There is no other thinker of importance on economic subjects 
in France till the appearance of the physiocrats, which marks 
an epoch in the history of the science. 

The heads of the physiocratic school were Frangois Quesnay 
(1694-1774) and Jean Claude Marie Vincent, sieur de 
Gournay (1712-1759). The principles of the school had 
been put forward in 1755 ^J Richard Cantillon, a French 
merchant of Irish extraction (Essai sur la nature du Commerce 
en general), whose biography Jevons has elucidated,^ and 
whom he regards as the true founder of political economy ; 



^ " Richard Cantillon and the Nationality of Political Economy," in 
Contemporary Review^ Jan. 188 1. Cantillon is qnoted in the Wealth 0/ 
NationSf bk. i. chap. 8. 



SYSTEM OF NATURAL LIBERTY. 61 

but it was in the Lands of Quesnay and Gournay ^ that they 
acquired a systematic form, and became the creed of a united 
group of thinkers and practical men, bent on carrying them 
into action. Tlie members of the group called themselves 
** les ^conomistes," but it is more convenient, because unam- 
biguous, to designate them by the name *' physiocrates," 
invented by Diipont de Kemours, who was one of their 
number. In this name, intended to express the fundamental 
idea of the school, much more is implied than the subjection 
of the phenomena of the social, and in particular the economic, 
world to fixed relations of co-existence and succession. This 
is the positive doctrine which lies at the bottom of all true 
science. But the law of nature referred to in the title of the 
sect was something quite different. The theological dogma 
which represented all the movements of the universe as 
directed by divine wisdom and benevolence to the production 
of the greatest possible sum of happiness had been trans- 
formed in the hands of the metaphysicians into the conception 
of Si jus naturae, a harmonious and beneficial code established 
by the favourite entity of these thinkers, J^ature, antecedent 
to human institutions, and furnishing the model to which 
they should be made to conform. This idea, which Buckle 
apparently supposes to have been an invention of Hutcheson's, 
had come down through Roman juridical theory from the 
speculations of Greece.^ It was taken in hand b^^the modern 
negative school from Hobbes to Rousseau, and used as a power- 
ful weapon of assault upon the existing order of society, with 
w^hich the '* natural" order was perpetually contrasted as offer- 
ing the perfect type from which fact had deplorably diverged. 
The theory received different applications according to the 
diversity of minds or circumstances. By some it was directed 
against the artificial manners of the times, by others against 

^ Gournay strongly recommended to his friends Cantillon's book as 
"ouvrage excellent qu'on negligeait." Memoires de Morelltt, i. 38. 

2 See Cliffe Leslie's Essays in Political and Moral Philosophy, p. 
151. 



62 POLITICAL ECONOMY, 

contemporary political institutions ; it was specially employed 
by the physiocrats in criticising the economic practice of 
European Governments. 

The general political doctrine is as follows. Society is 
composed of a number of individuals all having the same 
natural rights. If all do not possess (as some members of the 
negative school maintained) equal capacities, each can at least 
best understand his own interest, and is led by nature to follow 
it. The social union is really a contract between these 
individuals, the object of which is the limitation of the 
natural freedom of each, just so far as it is inconsistent with 
tlie rights of the others. Government, though necessary, is a 
necessary evil ; and the governing power appointed by consent 
should be limited to the amount of interference absolutely 
required to secure the fulfilment of the contract. In the 
economic sphere, this implies the right of the individual to 
such natural enjoyments as he can acquire by his labour. 
That labour, therefore, should be undisturbed and unfettered ; 
and its fruits should be guaranteed to the possessor ; in other' 
words, property should be sacred. Each citizen must be 
allowed to make the most of his labour ; and therefore freedom 
of exchange should be ensured, and competition in the market 
should be unrestricted, no monopolies or privileges being 
permitted to exist. 

The physiocrats then proceed with the economic analysis as 
follows. Only those labours are truly ^'productive" which 
add to the quantity of raw materials available for the purposes 
of man ; and the real annual addition to the wealth of the 
community consists of the excess of the mass of agricultural 
products (including, of course, minerals) over their cost of 
production. On the amount of this "produit net" depends 
the wellbeing of the community, and the possibility of its 
advance in civilisation. The manufacturer merely gives a new 
form to the materials extracted from the earth ; the higher 
value of the object, after it has passed through his hands, only 
represents ihe quantity of provisions and other materials used 



SYSTEM OF NATURAL LIBERTY. 63 

and consumed in its elaboration. Commerce does notbingf 
more than transfer the wealth already existing from one hand 
to another ; what the trading classes gain thereby is acquired 
at the cost of the nation, and it is desirable that its amount 
should be as small as possible. The occupations of the 
manufacturer and merchant, as well as the liberal professions, 
and every kind of personal service, are *' useful " indeed, but 
they are " sterile," drawing their income, not from any fund 
which they themselves create, but from the superfluous 
earnings of the agriculturist. Perfect freedom of trade not 
only rests, as we have already seen, on the foundation of 
natural right, but is also recommended by the consideration that 
it makes the *' produit net," on which all wealth and general 
progress depend, as large as possible. " Laissez faire, laissez 
passer" should therefore be the motto of Governments. The 
revenue of the state, which must be derived altogether from 
this net product, ought to be raised in the most direct and 
simplest way, — namely, by a single impost of the nature of a 
land tax. 

The special doctrine rehiting to the exclusive productiveness of 
agriculture arose out of a confusion between "value " on the one 
liand and " matter and energy" on the other. Smith and others 
have shown that the attempt to fix the character of ^* sterility *' 
on manufactures and commerce was founded in error. And 
the proposal of a single impot territorial falls to the ground 
with the doctrine on which it was based. But such influence 
as the school exerted depended littl-e, if at all, on these 
peculiar tenets, which indeed some of its members did not 
hold. The efFectiv-e result of its teaching was mainly 
destructive. It continued in a more systematic form the 
eff'orts in favour of the freedom of industry already begun in 
England and France. The essential historical office of the 
physiocrats was to discredit radically the methods followed by 
the European Governments in their dealings with industry. 
For such criticism as theirs there was, indeed, ample room : 
the policy of Colbert, which could be only temporarily useful, 



64 POLITICAL ECONOMY. 

had been abusively extended and intensified ; Governmental 
action had intruded itself into the minntest details of business, 
and every process of manufacture and transaction of trade was 
hampered by legislative restrictions. It was to be expected 
that the reformers should, in the spirit of the negative philo- 
sophy, exaggerate the vices of established systems ; and there 
can be no doubt that they condemned too absolutely the 
economic action of the state, both in principle and in its 
historic manifestations, and pushed the 'Maissez faire " doctrine 
beyond its just liiiiits. But this was a neces?ary incident of 
their connection with the revolutionary movement, of which 
they really formed one wing. In the course of that movement, 
the primitive social contract, the sovereignty of the people, 
and other dogmas now seen to be untenable, were habitually 
invoked in the region of politics proper, and had a transitory 
utility as ready and ejffective instruments of warfare. And so 
also in the economic sphere the doctrines of natural rights of 
buying and selling, of the suthciency of enlightened selfishness 
as a guide in mutual dealings, of the certainty that each 
member of the society will 'understand and iollow his true 
interests, and of the coincidence of those interests with the 
public welfare, though they will not bear a dispassionate 
examination, were temporarily useful as convenient and ser- 
viceable weapons for the overthrow of the established order. 
The tendency of the school was undoubtedly to consecrate the 
spirit of individualism, and the. ^tate of non-government. But 
this tendency, whicli may with justice be severely condemned 
in economists of the present time, was then excusable because 
inevitable. And, whilst it now impedes the work of recon- 
struction which is for us the order of the day, it then aided 
the process of social demolition, which was the necessary, 
though deplorable, condition of a new organisation. 

These conclusions as to the revolutionary tendencies of the 
school are not at all affected by the fact that the form of 
government preferred by Quesnay and some of his chief fol- 
lowers was what they called a legal despotism, which should 



SYSTEM OF NATURAL LIBERTY. 6$ 

embrace within itself both the legislative and the executive 
function. The reason for tliis preference was tliat an en- 
lightened central power could more promptly and efficaciously 
introduce the policy they advocated than an assembly repre- 
senting divergent opinions, and fettered by constitutional 
checks and limitations. Turgot, as we know, used the absolute 
power of the crown to carry into effect some of his measures 
for the liberation of industry, though he ultimately failed 
because unsustained by the requisite force of character in 
Louis XYI. But what the physiocratic idea with respect to 
the normal method of government was appears from Quesnay's 
advice to the dauphin, that when he became king he should 
** do nothing, but let the laws rule," the laws having been of 
course first brought into conformity with the jus naturae. The 
partiality of the school for agriculture was in harmony with 
the sentiment in favour of *^ nature " and primitive simplicity 
which then showed itself in so many forms in France, especially 
in combination with the revolutionary spirit, and of which 
Rousseau was the most eloquent exponent. It was also asso- 
ciated in these writers \\ith a just indignation at the wretched 
state in which the rural labourers of France had been left by 
the scandalous neglect of the superior orders of society— a 
state of which the terrible picture drawn by La Bruyere is an 
indestructible record. The members of the physiocratic group 
were undoubtedly men of thorough uprightness, and inspired 
with a sincere desire for the public good, especially for the 
material and moral elevation of the working classes. Quesnay 
was physician to Louis XY., and resided in the palace at 
Versailles ; but in the midst of that corrupt court he main- 
tained his integrity, and spoke with manly frankness what he 
believed to be the truth. And never did any statesman devote 
himself with greater singleness of purpose or more earnest 
endeavour to the service of his country than Turgot, who was 
the principal practical representative of the school. 

The publications in which Quesnay expounded his system 
were the following: — Two articles, on **Fermiers" and on 

B 



66 POLITICAL ECONOMY. 

"Grains," in the Encijclo;pedie of Diderot and D'Alembert 
(1756, 1757); a discourse on the law of nature in the Physio- 
cratie oi Dupont de Nemours (1768); Maximes generates de 
gouvernement economique d'un royaume agricole (1758), and 
the simultaneously published Tableau i^conomique avec son 
explication, ou Extrait des Economies Royales de Sully (with 
the celebrated motto " pauvres paysans, pauvre royaume; 
pauvre royaumo, pauvre roi"); Dialogue sur le commerce et 
les travaux des artisans ; and other minor pieces. The 2\ibleau 
Economique, though on account of its dryness antl abstract 
form it met with little general favour, may be considered the 
principal manifesto of the school. It was regarded by the 
followers of Quesnay as entitled to a place amongst the fore- 
most products of human wisdom, and is named by the elder 
Mirabeau, in a passage quoted by Adam Smith, ^ as one of the 
three great inventions which have contributed most to the 
stability of political societies, the other two being those of 
writing and of money. Its object was to exhibit by means of 
certain formulas the way in which the products of agriculture, 
whicli is the only source of wealth, would in a state of perfect 
liberty be distributed among the several classes of the com- 
munity (namely, the productive classes of the proprietors and 
cultivators of land, and the unproductive class composed of 
manufacturers and merchants), and to represent by other for- 
mulas the modes of distribution which take place under systems 
of Governmental restraint and regulation, with the evil results 
arising to the whole society from different degrees of such 
violations of the natural order. It follows from Quesnay's 
theoretic views that the one thing deserving the solicitude of 
the practical economist and the statesman is the increase of 
the net product; and he infers also what Smith afterwards 
affirmed on not quite the same ground, that the interest of the 
landowner is *' strictly and inseparably connected with the 
general interest of the society."* 

* Wealth of Nations, bk. iv. chap. 9. ^ Ibid. bk. i., chap. 1 1. 



SYSTEM OF NATURAL LIBERTY. 67 

M. de Gournay, as we have seen, was regarded as one of 
the founders of the school, and appears to have exercised some 
influence even upon the formation of Quesnay's own opinions. 
With the exception of translations of Culpeper and Child, ^ 
Gournay wrote nothing but memoirs addressed to ministers, 
which have not seen the light ; hut we have a full statement 
of his views in the Eloge dedicated to his memory by his 
illustrious friend Turgot. Whilst Quesnay had spent his 
youth amidst rural scenes, and had been early familiar with 
the labours of the field, Gournay had been bred as a merchant, 
and had passed from the counting-house to the office of inten- 
dant of commerce. They thus approached the study of political 
economy from different sides, and this diversity of their ante- 
cedents may in part explain the amount of divergence which 
existed between their views. Gournay softened the rigour 
of Quesnay 's system, and brought it nearer to the truth, by 
rejecting what Smith calls its '* capital error" — the doctrine, 
namely, of the unproductiveness of manufactures and com- 
merce. He directed his efforts to the assertion and vindica- 
tion of the principle of industrial liberty, and it was by him 
that this principle was formulated in the phrase, since so often 
heard for good and for evil, '^Laissez faire et laissez passer." 
One of the earliest and most complete adherents of the physio- 
cratic school, as well as an ardent and unwearied propagator 
of its doctrines, was Victor Mirabeau, whose sincere and inde- 
pendent, though somewhat perverse and whimsical, character 
is familiar to English readers through Carlyle's essay on his 
more celebrated son. He had expressed some physiocratic 
views earlier than Quesnay, but owned the latter for his spiritual 
father, and adopted most of his opinions, the principal dif- 
ference being that he w^as favourable to the petite as opposed 
to the grande culturSy which latter was preferred by his 
chief as giving, not indeed the largest gross, but the largest 

^ Gournay's inspiration was, without doubt, largely English. "I] 
avait lu," says Morellet, "de bons livres Anglais d'^conomie politique, 
tela que Petty, Davenant, Gee, Child, &c." — M^moireSj i. 38. 



68 POLITICAL ECONOMY. 

net product. Mirabeau's principal writings were Ami des 
Homines, ou traite sur la population (1756, 1760), Theorie dt 
Vimpot (1760), Les ^conomiques (J769), and Fliilosoplm 
rurale, ou J^conomie generale et politique de V Agriculture 
(1763). The last of these was the earliest complete expositi' Q 
of tlie physiocratic system. Anotlier earnest and persevering 
apostle of the system was Dupont de Nemours (1739-181 7^ 
known by his treatises De Veocportatioii et de Vimportation d,8 
grains (1764), De Vorigine et des progres dhine science nouv^Ale 
(1767), Du commerce de la Compagnie des Indes (1767) and 
especially by his more comprehensive work Pliysiocratle^ ou 
Constitution naturelle du gouvernement le p)lus avantageux au 
genre liumain (1768). The title of this work gave, as has 
been already mentioned, a name to the school Another 
formal exposition of the system, to which Adam Smith refers 
as the ''most distinct and best connected account" of it, was 
produced by Mercier-Lariviere, under the title UOrdre naturel 
et essentiel des societes politiques (1767), a title which is inte- 
resting as embodying the idea of i\\QJus naturce. Both he and 
Dupont de Nemours professed to study human communities, 
not only in relation to their economic, but also to their political 
and general social aspects ; but, notwithstanding these larger 
pretensions, their views were commonly restricted in the main 
to the economic sphere; at least material considerations de- 
cidedly preponderated in their inquiries, as was naively indi- 
cated by Lariviere when he said, ''Property, security, liberty — 
these comprise the whole social order ; the right of property is 
a tree of which all the institutions of society are branches." 

The most eminent member of the group was without doubt 
Anne Eobert Jacques Turgot (1727-1781). This is not the 
place to speak of his noble practical activity, first as intendant 
of Limoges, and afterwards for a brief period as finance 
minister, or of the circumstances which led to his removal 
from office, and the consequent failure of his efforts for the 
salvation of France. His economic views are explained in 
the introductions to his edicts and ordinances, in letters and 



SYSTEM OF NATURAL LIBERTY. 69 

occasional papers, but especially in his Reflexions sur la formor 
lion et la distrihittion des rich esses (1766). This is a con- 
densed but eminently clear and attractive exposition of the 
fundamental principles of political economy, as they were con- 
ceived by the physiocrats. It embodies, indeed, the erroneous 
no less than the sound doctrines of that school ; but several 
subjects, e^^pecially the various forms of land-economy, the 
different employments of capital, and the legitimacy of 
interest, are handled in a generally just as well as striking 
manner ; and the mode of presentation of the ideas, and the 
luminous arrangement of the whole, are Turgot's own. The 
treatise, which contains a surprising amount of matter in pro- 
portion to its length, must always retain a place among the 
classics of the science. 

(^The physiocratic school never obtained much direct popular 
influence, even in its native country, though it strongly 
attracted many of the more gifted and earnest minds. Its 
members, writing on dry subjects in an austere and often 
heavy style, did not find acceptance with a public which 
demanded before all things charm of manner in those who 
addressed it. When Morellet, one of their number, entered 
the lists with Galiani, it was seen how espiit and eloquence 
could triumph over science, solid indeed, but clumsy in its 
movements.^ The physiocratic tenets, which were in fact 
partially erroneous, were regarded by many as chimerical, and 
were ridiculed in the contemporary literature, as, for example, 
the impot unique by Yoltaire in his Uhomme aux quarante 
ecus, wliich was directed in particular against Mercier- 
Lariviere. It was justly objected to the group that they were 

^ On Galiani's Dialogues, see page 72. Soon after the appearance of 
this book Tiirgot wrote to Mile. Lespinasse — "Je crois possible de 
l»ii faire une tres bf)nne reponse ; mais cela demande bien de I'art. Les 
^conomistes sont trop confiants pour combattre contre un si adroit 
ferrailleur. Pour I'abbe Morellet, il ne faut pas qu'il y pense." 
Morellet's work was prohibited by the Controller-General Terray; 
though printed in 1 770, some months after Galiani's, it was not 
published till 1774. 



70 POLITICAL ECONOMY. 

too absolute in their view of things; they supposed, as Smith 
remarks in speaking of Quesiiay, that the body-politic could 
thrive only under one precise regime, — that, namely, which 
they recommended, — and thought their doctrines universally 
and immediately applicable in practice. ^ They did not, as 
theorists, sufficiently take into account national diversities,^ 
or different stages in social development ; nor aid tJiey, as 
politicians, adequately estimate the impediments which ignor- 
ance, prejudice, and interested opposition present to enlightened 
statesmanship. It is possible that Turgot himself, as Grimm 
suggests, owed his failure in part to the too unbending rigour 
of his policy and the absence of any attempt at conciliation. 
Be this as it may, his defeat helped to impair the credit of his 
principles, which were represented as having been tried and 
found wanting. 

The physiocratic system, after guiding in some degree 
the policy of the Constituent Assembly, and awakening a 
few echoes here and there in foreign countries, soon ceased 
to exist as a living power ; but the good elements it com* 
prised were not lost to mankind, being incorporated into the 
Rounder and more complete construction of Adam Smith. 

Italy. 

In Italy, as in the other European nations, there was little 
activity in the economic field during the first half of the 
eighteenth century. It was then, however, that a really 
remarkable man appeared, the archdeacon Salustio Antonio 
Ikndini (1677-1760), author of the Discorso sulla Maremma 
Sienese^ written in 1737, but not published till 1775. The 

1 Hume, in a letter to Morellet, 1 769, calls them "the set of men the 
most chimerical and arrogant that now exist." He seems intentionally 
to ignore Morellet's close connection with them. 

^ Turgot said, " Quiconque n'oublie pas qu'il y a des ^tats politiquea 
s^pares les nns des autres et constitu^s diversement, ne traitera jamaia 
bien aucune question d'^conomie politique." — Letter to Mile, Lespinasse^ 
1770. 



SYSTEM OF NATURAL LIBERTY. 71 

object of the work was to raise the Maremma frcm the 
wretched condition into which it had fallen through the 
decay of agriculture. This decay he showed to be, at least 
in part, the result of the wretched fiscal system which was 
in force ; and his book led to important reforms in Tuscany, 
where his name is held in high honour. Not only by 
Pecchio and other Italian writers, but by Koscher also, he 
is alleged to have anticipated some leading doctrines of the 
physiocrats, but this claim is disputed. There was a remarkable 
renascence of economic studies in Italy during the latter half 
of the century, partly due to French influence, and partly, it 
would appear, to improved government in the northern states. 
The movement at first followed the lines of the mercantile 
schooL Thus, in Antonio Broggia's 2'rattati dei trihuti e delle 
monetee del governo politico delta societa (1743), and Girolamo 
Belloni's Dissertazione sopra il commercio (1750), which seems 
to have had a success and reputation much above its merits^ 
mercantilist tendencies decidedly preponderate. But the most 
distinguished writer who represented that economic doctrine 
in Italy in the last century was Antonio Genovesi, a jS'eapolitan 
(17 1 2-1 769). He felt deeply the depressed intellectual and 
moral state of his fellow-countrymen, and aspired after a 
revival of philosophy and reform of education as the first 
condition of progress and wellbeing. With the object of pro- 
tecting him from the theological persecutions which threatened 
him on account of his advanced opinions, Bartoloraeo Intieri, 
of whom we shall hear again in relation to Galiani, founded 
in 1755, expressly for Genovesi, a chair of commerce and 
mechanics, one of the conditions of foundation being that it 
should never be filled by a monk. This was the first pro- 
fei)Sorship of economics established in Europe ; the second was 
founded at Stockholm in 1758, and the third in Lombardy 
ten years later, for Beccaria. The fruit of the labours of 
Genovesi in this chair was his Lezioni di commercio^ ossla di 
econoraia civile (1769), which contained the first systematic 
treatment of the whole subject which had appeared in Italy. 



J2 POLITICAL ECONOMY. 

As the model for Italian imitation he held up England, a 
country for which, says Pecchio, he had a predilection almost 
amounting to fanaticism. He does not rise above the false 
economic system which England then pursued ; but he rejects 
some of the grosser errors of the school to which he belonged ; 
he advocates the freedom of the corn trade, and deprecates 
regulation of the interest on loans. In the spirit of his age, 
he denounces the relics of mediaeval institutions, such as 
entails and tenures in mortmain, as impediments to the 
national prosperity. Ferdinando Galiani was another dis- 
tinguished disciple of the mercantile school. Before he had 
completed his twenty-first year he published a work on money 
(Delia moneta lihri cinque^ 1750)? ^^i® principles of which are 
supposed to have been dictated by two experienced practical 
men, the Marquis Einuccini and Eartolomeo Intieri, whose 
name we have already met. But his reputation was made 
by a book written in French and published in Paris, where 
he was secretary of embassy, in 1770, namely, his Dialogues 
sur le commerce des hies. This work, by its light and pleasing 
style, and the vivacious wit with which it abounded, delighted 
Voltaire, who spoke of it as a book in the production of which 
Plato and Moliere might have been combined ! ^ The author, 
says Pecchio, treated his arid subject as Fontenelle did the 
vortices of Descartes, or Algarotti the Newtonian system of 
the world. The question at issue was that of the freedom of 
the corn trade, then much agitated, and, in particular, the 
policy of the royal edict of 1764, which permitted the ex- 
])ortat,on of grain so long as the price had not arrived at a 
certain height. The general principle he maintains is that 
the best system in regard to this trade is to have no system, 
— countries differently circumstanced requiring, according to 
him, different modes of treatment. This seems a lame and 
impotent conclusion from the side of science; yet doubtless 

1 So also Grimm : " C'est Platon avec la verve et les gestea 
d'Arlequin." Diderot called the book "models de dialogues qui restera 
k c6td des lettres de Pascal." 



SYSTEM OF NATURAL LIBERTY. 73 

the physiocrats, with whom his controversy lay, prescribed 
on tliis, as on other subjects, rules too rigid for the safe 
guidance of statesmen, and Galiani may have rendered a 
real service by protesting against their absolute solutions of 
practical problems. He fell, ho^yever, into some of tlie most 
serious errors of the mercantilists, — holding, as indeed did also 
Voltaire and even Yerri, that one country cannot gain with- 
out anotlier losing, and in his earlier treatise going so far as to 
defend the action of Governments in debasing the currency. 

Amongst the Italian economists who were most under the 
influence of the modern spirit, and in closest harmony with the 
general movement which was impelling the Western nations 
towards a new social order, Cesare Eeccaria (1738-1794) holds 
a foremost place. He is best known by his celebrated treatise 
Dei delitti e delle pene, by which Yoltaire said he had made 
himself a benefactor of all Europe, and which, we are told, 
has been translated into twenty-two languages. The Empress 
Catherine having invited him to fix his residence at St. 
Petersburg, the Austrian Government of Lombardy, in order 
to keep him at home, established expressly for him a chair of 
political economy ; and in his Elementi di economia pabblica 
(i 769-1 771 ; not published, however, till 1804) are embodied 
his teachings as professor. The work is unfinished : he had 
divided the whole subject under the heads of agriculture, 
manufactures, commerce, taxation, government ; but he has 
treated adequately only the first two heads, and the last two 
not at all, having been called to take part in the councils of the 
state. He was in some degree under the influence of physio- 
cratic ideas, and holds that agriculture is the only strictly 
productive form of industry, whilst manufactures and artisans 
are a sterile class. He was strongly opposed to monopolies 
and privileges, and to corporations in arts and trades ; in 
general he warmly advocated internal industrial freedom, 
though in regard to foreign commerce a protectionist. In the 
special case of the corn trade he was not, any more than 
Galiani, a partisan of absolute liberty. His exposition of 



74 POLITICAL FXONOMY. 

economic principles is concise and sententious, and he often 
states correctly the most important considerations relating to 
his subject without adding the developments which would 
be desirable to assist comprehension and strengthen convic- 
tion. Thus on fixed capital (capitali fondatori), as distinct 
from circulating (aimui), in its application to agriculture, he 
presents in a condensed form essentially the same explana- 
tions as Turgot about the same time gave ; and on the division 
of labour and the circumstances which cause different rates of 
wages in different employments, he in substance comes near 
to Smith, but without the fulness of illustration which is so 
attractive a feature of the Wealth of Nations. Pietro Yerri 
(i 728-1 797), an intimate and life-long friend of Eeccaria, was 
for twenty-five years one of the principal directors of the 
administration of Lom hardy, in which capacity he originated 
many economic and other reforms. In his Riflessioni suite 
leggi vincoLanti^ frincipalmente net commercio de' grani (written 
in 1769, printed in 1796), he considers the question of the 
regulation of the corn trade both historically and in the light 
of theoretic principles, and arrives at the conclusion that 
liberty is the best remedy against famine and against excessive 
fluctuations of price. He is generally opposed to Govern- 
mental interference with internal commerce, as well as to 
trade corporations, and the attempts to limit prices or fix the 
rate of interest, but is in favour of the protection of national 
industry by a judiciously framed tariff. These views are 
explained in his Meditazioni sulV economia politica (17 71), an 
elementary treatise on the science, which was received with 
favour, and translated into several foreign languages. A 
primary principle with him is what he calls the augmenta- 
tion of reproduction — that is, in Smith's language, of " the 
annual produce of the land and labour " of a nation ; and 
by its tendency to promote or to restrict this augmentation, 
he tests every enactment and institution. Accordingly, 
unlike Eeccaria, he prefers the petite to the grande cidture^ 
as giving a larger total produce. In dealing wuth taxation, 



SYSTEM OF NATURAL LIBERTY. 75 

he rejects the pliysiocratic proposal of a single impot terri- 
torial.'^ Giovanni E. Carli (i 720-1795), also an official pro- 
moter of the reforms in the government of Austrian Lombardy, 
besides learned and sound treatises on money, was author of 
Ragionamenti sopra i hilanci econnmici delle iiazioni^ in which 
he shows the falsity of the notion that a state gains or loses in 
foreign commerce according to the so-called balance of trade. 
In his letter to Pompeo Neri Sul lihero commercio de' grant 
(1771). he takes np a position similar to that of Galiani, 
regarding the question of the freedom of the corn trade as not 
so much a scientific as an admiiustrative one, to be dealt with 
differently under different local or other conditions. Reject- 
ing the pliysiocratic doctrine of the exclusive productiveness 
of agriculture, he illustrates in an interesting way the neces- 
sity of various economic classes in a society, and the reflex 
agency of manufactures in stimulating the cultivation of the 
soih Giambattista Yasco (i 733-1 796) wrote discourses on 
several questions proposed by academies and sovereigns. In 
these he condemns trade corporations and the attempts by 
Governments to fix the price of bread and to limit the interest 
on loans. In advocating the system of a peasant projmetary, 
he suggests that the law should determine the minimum and 
maximum portions of land which a citizen should be per- 
mitted to possess. He also, with a view to prevent the undue 
accumulation of property, proposes the abolition of the right 
of bequest, and the equal division of the inheritance amongst 
the children of the deceased. Gaetano Filangieri (175 2-1 788), 
one of the Italian writers of the last century whose names are 
most widely known throughout Europe, devoted to economic 

^ J. S. Mill, in his Principles, bk. i. chap, i, takes credit to his father 
for having first illustrated and made prominent in relation to produc- 
tion what he strangely calls *'a fundamental principle of Political 
Economy," namely, that "all that man does or can do with matter" is 
to " move one thing to or from another." But this is clearly put forvyard 
by Verri in his Meditazioni, sect. 3 : "Accostare e separare sono gli 
unici element! che Tingegno umano ritrova analizzando I'idea della 
riproduzione.** 



76 POLITICAL ECONOMY. 

questions the second book of his Scienza della legislazione (5 
vols., 1 780-1 7 85). Filled with reforming ardour and a }.'as- 
sionate patriotism, he employed his vehement eloquence in 
denouncing all the abuses of his time. Apparently without 
any knowledge of Adam Smith, he insists on unlimited free. 
dom of trade, calls for the abolition of the mediaeval institu- 
tions which impeded production and national wellbeing, and 
condemns the colonial system then followed by England^ 
Spain, and Holland. He prophecies, as Eaynal, Turgot, and 
Genovesi had done before him, that all America would one 
day be independent, a prediction which probably helped to 
elicit Benjamin Franklin's tribute of admiration for his work. 
Rather a propagator than a discoverer, he sometimes adopted 
from others erroneous opinions, as, for example, when he 
approves the impot unique of the physiocrats. On the whole, 
however, he represents the most advanced political and social 
tendencies of his age ; whilst strongly contrasted with Beccaria 
in temperament and style, he was a worthy labourer in the 
same cause of national and universal progress. Ludovico 
Ricci (i 742-1 799) was author of an able report Sulla riforma 
degli istituti pii della citta di Modena (1787). He treated the 
subject of poor relief and charitable institutions in so general 
a way that the work possesses a universal and permanent in- 
terest. He dwells on the evils of indiscriminate relief as 
tending to increase the misery it seeks to remove, and as 
lowering the moral character of a population. He exposes 
especially the abuses connected with lying-in and foundling 
hospitals. There is much in liim which is akin to the views 
of Malthus ; like him he is opposed to any state provision for 
the destitute, who ought, he thinks, to be left to voluntary 
private beneficence. Ferdinando Paoletti (171 7-1 801) was 
an excellent and public-spirited priest, who did much for the 
diffusion of intelligence amongst the agricultural population of 
Tuscany, and for the lightening of the taxes which pressed 
upon them. He corresponded with Mirabeau (" Friend of 
Men"), and appears to have accepted the physiocratic doc- 



syste:>! of natural liberty. 77 

trines, at least in their general substance. He was author of 
Pensieri sojpra V agricoltura (1769), and of / veri mezzi dt 
render felici le societct (1772); in the latter he advocates the 
freedom of the corn trade. The tract II Colhertismo (1791) 
by Count Francesco Mengotti is a vigorous protest agaiust the 
extreme policy of prohibition and protection, which may still 
be read with interest. Mengotti also wrote (1791) a treatise 
Del eommercio d^ Romania directed mainly against the ex- 
aggerations of Huet in his Histolre du commerce et de la 
navigation des anciens (17 16), and useful as marking the broad 
difierence between the ancient and modern civilisations. 

Here lastly may be mentioned another Italian thinker who, 
eminently original and even eccentric, cannot easily be classed 
among his contemporaries, though some Continental writers 
of our own century have exhibited similar modes of thought. 
This was Giammaria Ortes (i 713-1790). He is opposed to 
the liberalist tendencies of his time, but does not espouse the 
doctrines of the mercantile system, rejecting the tlieory of the 
balance of trade, and demanding commercial freedom. It is 
in the Middle Ages that he finds his social and economic 
type. He advocates the maintenance of church property, is 
averse to the ascendency of the money power, and has the 
mediaeval dislike for interest on loans. He entertains the 
singular idea that the w^ealth of communities is always and 
everywhere in a fixed ratio to their population, the latter being 
determined by the former. Poverty, therefore, necessarily 
waits on wealth, and the rich, in becoming so, only gain what 
the poor lose. Those who are interested in the improve- 
ment of the condition of the people labour in vain, so long 
as they direct their efi'orts to the increase of the sum 
of the national wealth, which it is beyond their power 
to alter, instead of to the distribution of that wealth, which 
it is possible to modify. The true remedy for poverty lies 
in mitigating the gain-pursuing propensities in the rich and 
in men of business. Ortes studied in a separate work the 
Bubject of population; he formulates its increase as **geo- 



78 POLITICAL ECONOMY. 

metrical/' but recognises that, as a limit is set to such increase 
amongst the lower animals by mutual destruction, so is it in 
the human species by ^' reason" — the "prudential restraint" 
of which Malthus afterwards made so much. He regards the 
institution of celibacy as no less necessary and advantageous 
than tliat of marriage. He enunciates what has since been 
known as tiie " law of diminishing returns to agricultural in- 
dustry." He -was careless as to the diffusion of his writings ; and 
hence they remained almost unknown till they were included 
in the Custodi collection of Italian economists, when they 
attracted much attention by the combined sagacity and way- 
wardness which marked their author's intellectual character, 

Spain. 

The same breath of a new era which was in the air else* 
where in Europe made itself felt also in Spain. 

In the earlier part of the eighteenth century Geronimo 
Ustariz had written his Teorica y Practica del Comercio 
y Marina (1724; published, 1740; Eng. transl. by John 
Kippax, 1751 ; Erench by Eorbonnais, 1753), in which he 
carries mercantile principles to their utmost extreme. 

The reforming spirit of the latter half of the century was 
"best represented in that country by Pedro Eodriguez, Count 
of Campomanes (i 723-1802). He pursued with ardour the 
same studies and in some degree the same policy as his illus- 
trious contemporary Turgot, w^ithout, however, having arrived 
at so advanced a point of view. He was author of Mespuesta 
fiscal sobre aholir la tasa y estahlecer el comercio de granos 
(1764), Dlscurso sohre el fomento de industria j)opolar (1774), 
and Discttrso sobre la educacion de los artesanos y su fomento 
(1775^ -^y i^icans of these writings, justly eulogised by 
Robertson,^ as well as by his personal efforts as minister, he 
sought to establish the freedom of the corn trade, to remove 
the hindrances to industry arising from mediaeval survivals, 

^History of America^ note 193. 



SYSTEM OF NATURAL LIBERTY. 79 

to give a large development to manufactures, and to liberate 
agriculture from the odious burdens to "wliicli it was subject. 
He saw that, notwithstanding the enlightened administration 
of Charles III., Spain still suffered from the evil results of 
the blind coniidence reposed by her people in her gold mines, 
and enforced the lesson that the real sources of the wealth and 
power of his country must be sought, not in America, but in 
h^r own industry. 

In both Italy and Spain, as is well observed by Comte,^ 
the impulse towards social change took principally the direc- 
tion of economic reform, because the pressure exercised by 
Governments prevented so large a measure of free speculation 
in the fields of philosophy and general politics as was possible 
in I'rance. In Italy, it may be added, the traditions of the 
great industrial past of tlie northern cities of that country 
also tended to fix attention chiefly on the economic side of 
public policy and legislation. 



Germa^^y. 

"Wo have seen that in Italy and England political economy 
had its beginnings in the study of practical questions relating 
chiefly to money or to foreign commerce. In Germany it 
aro?e (as Eoscher has shown) out of the so-called cameralistic 
sciences. Soon after the close of the Middle Ages there existed 
in most German countries a_ council, known as the Kammer 
(Lat. camera), which was occupied with the management of 
, tlie public domain and the guardianship of regal rights. The 
Emperor Maximilian found this institution existing in Bur- 
gundy, and established, in imitation of it, aulic councils at 
Innspruck and Yienna in 1498 and 1501. ISTot only finance 
and taxation, but questions also of economic police, came to 
be entrusted to these bodies. A special preparation became 
necessary for their members, and chairs of cameralistic science 

^ Fhilo&ophic Positive, vol. v. p. 759. 



8o POLITICAL ECONOMY. 

were founded in universities for the teaching of the appro- 
priate body of doctrine. One side of the instruction thua 
given borrowed its materials from the sciences of external 
nature, dealing, as it did, with forestry, mining, general 
technology, and the like ; the other related to the conditions 
of national prosperity as depending on human relations and 
institutions ; and out of the latter, German political economy 
was at first developed. 

In no country had mercantilist views a stronger hold than 
in Germany, though in none, in the period we are now con- 
sidering, did the system of the balance of trade receive a less 
extensive practical application. All the leading German 
economists of the seventeenth century — Bornitz, Besold, 
Klock, Becher, Horneck, Seckendorf, and Schroder — stand on 
the common basis of the mercantile doctrine. And the same 
may be said of the writers of the first half of the eighteenth 
century in general, and notably of Justi (d. 1771), who was 
the author of the first systematic German treatise on political 
economy, a work which, from its currency as a text book, had 
much effect on the formation of opinion. Only in Zincke 
( 1 692-1 769) do we find occasional expressions of a circle of 
ideas at variance with the dominant system, and pointing in 
the direction of industrial freedom. But these writers, except 
from the national point of view, are unimportant, not having 
exercised any influence on the general movement of European 
thought. 

The principles of the physiocratic system met with a 
certain amount of favour in Germany. Karl Friedrich, Mar- 
grave of Baden, wrote for the use of his sons an Ahrege des 
principes d^£conomie Politique, 1772, which is in harmony 
with the doctrines of that system. It possesses, however, 
little scientific value. Schlettwein (i 731-1802) and Mauvillon 
(i 743-1 794) were folloAvers of the same school. Theodor 
Schmalz (1764-1831), who is commonly named as^'thelast 
of the physiocrats," may be here mentioned, though somewhat 
out of the historic order. He compares Colbertism with the 



SYSTEM OF NATURAL LIBERTY. 8l 

Ptolemaic system, physiocratism witli the Copornican. Adam 
Smith he represents as the Tycho Brahe of political economy, 
— a man of eminent powers, who could not resist the force 
of truth in the physiocrats, but partly could not divest himself 
of rooted prejudices, and partly was ambitious of the fame 
of a discoverer and a reconciler of divergent systems. Though 
Smith was now ** the fashion," Schmalz could not doubt that 
Quesnay's doctrine was alone true, and would ere long be 
triumphant everywhere. 

Just before the appearance of Smith, as in England Steuart, 
and in Italy Genovesi, so in Austria Sonnenfels (1733-18 17), 
the first distinguished economist of that country, sought to 
present the mercantile system in a modified and more enlight- 
ened form ; and his work {Grundsdtze der Polizei, Handlungy 
und Finanzy 1765; 8th ed., 1822), exercised even during a 
considerable part of the present century much influence on 
opinion and on policy in Austria. 

But the greatest German economist of the eighteenth cen- 
tury was, in Koscher's opinion, Justus Moser (i 720-1 794), the 
author of Patriotische Pliantasieen (17 74), a series of fragments, 
which, Goethe nevertheless declares, form "ein wahrhattes 
Ganzes." The poet was much influenced by Moser in his 
youth, and has eulogised in the Dicldung und Wahrheit (Bk. 
xiii.) his spirit, intellect, and character, and his thorough in- 
sight into all that goes on in the social world. Whilst others 
occupied themselves with larger and more prominent public 
afi'airs and transactions, Moser observed and reproduced the 
common daily life of his nation, and the thousand "little 
things " which compose the texture of popular existence. He 
has been compared to Franklin for the homeliness, verve, 
and freshness of his writings. In opinions he is akin to 
the Italian Ortes. He is opposed to the whole spirit of the 
** Aufklarung," and to the liberal and rationalistic direction 
of which Smith's work became afterwards the expression. He 
is not merely conservative but reactionary, manifesting a 
preference for mediaeval institutions such as the trade guilds, 



82 POLITICAL ECONOMY. 

aiul, like Carlyle in our own time, seeing advantages even in 
serfdon^., wlien compared with the sort of freedom enjoyed 
by the modern drudge. He has a marked antipathy for the 
growth of the money power and of manufactures on tlie large 
scale, and for the highly developed division of labour. He ia 
opposed to absolute private property in land, and would gladly 
see revived such a system of restrictions as in the interest 
of the state, the commune, and the family were imposed on 
mediaeval ownership. In his wayward and caustic style, he 
often criticises effectively the doctrinaire narrowness of his 
contemporaries, throws out many striking ideas, and in parti- 
cular sheds real light on the economic phenomena and general 
social conditions of the Middle Ages. 

Adam SxMith, with his Immediate Predecessors 
AND HIS Followers. 

England, 

The stagnation in economic inquiry which showed itself in 
England in the early part of the eighteenth century was not 
broken by any notable manifestation before 1735, "^^'^en Bishop 
Berkeley put forward in his Querist, with much force and 
point, views opposed to those of the mercantile school on 
the nature of national wealth and the functions of money, 
though not without an admixture of grave error. But soon 
a more decisive advance was made. Whilst in France the 
physiocrats were working after their own fashion towards the 
construction of a definitive system of political economy, a 
Scottish thinker of the first order was elucidating, in a series 
of short but pregnant essays, some of the fundamental con- 
ceptions of the science. What had been written on these 
questions in the English language before his time had remained 
almost altogether within the limits of the directly practical 
sphere. With Locke, indeed, the general system of the modern 
critical philosophy had come into relation with economic 
inquiry, but only in a partial and indeterminate way. But 



SYSTEM OF NATURAL LIBERTY. 83 

in Hume tlie most advanced form of this plnlosophy was 
representecl, and his appearance in the field of economics 
decisively marks the tendency of the latter order of specula- 
tion to place itself in connection with tlie largest and deepest 
thought on human nature and general human history. Most 
of the essays here referred to first appeared in 1752, in a 
volume entitled FoUtical Discourses, and the number was 
completed in the collection of Essays and lYeatises on Several 
Subjects, published in the following year. The most important 
of them are those on Commerce, on Money, on Interest, and 
on the Balance of Trade. Yet these should not be separated 
from the rest, for, notwithstanding the unconnected form of 
these little treatises, there runs through them a profound 
unity of thought, so that they indeed compose in a certain 
sense an economic system. They exhibit in full measure 
Hume's wonderful acuteness and subtlety, which indeed some- 
times dispose him to paradox, in combination with the breadth, 
the absence of prejudice, and the social sympathies which so 
eminently distinguish him ; and they offer, besides, the charm 
of his easy and natural style and his rare power of lucid 
exposition. 

r In the essay on money he refutes the mercantilist error, 
which tended to confound it with wealth. ''Men and com- 
modities," he says, "are the real strength of any community." 
" In the national stock of labour consists all real power and 
riches." Money is only the oil which makes the movements 
of the mechanism of commerce more smooth and easy. He 
shows that, from the domestic as distinguished from the 
international point of view, the absolute quantity of money, 
supposed as of fixed amount, in a country is of no consequence, 
whilst an excessive quantity, larger, that is, than is required 
for the interchange of commodities, may be injurious as raisii^g 
prices and driving foreigners from the home markets. He 
goes so far, in one or two places, as to assert that the value of 
money is chiefly fictitious or conventional, a position which 
cannot be defended ; but it must not be pressed against him, 



84 POLITICAL ECONOMY. 

as he builds noilung on it. He Las some very ingenioua 
observations (since, however, questioned by J. S. Mill) on the 
effects of the increase of money in a country in stimulating 
industry during the interval which takes place before the 
additional amount is sufficiently diffused to alter the whole 
scale of prices. He shows that the fear of the money of an 
industrious community being lost to it by passing into foreign 
countries is groundless, and that, under a system of freedom, 
the distribution of the precious metals which is adapted to the 
requirements of trade will spontaneously establish itself. " In 
short, a Government has great reason to preserve with care its 
people and its manufactures ; its money it may safely trust to 
the course of human affairs without fear or jealousy." 

A very important service was rendered by his treatment 
of the rate of interest. He exposes the erroneous idea often 
entertained that it depends on the quantity of money in a 
country, and shows that the reduction of it must in general 
be the result of ** the increase of industry and frugality, of 
arts and commerce, '^ so that it may serve as a barometer, its 
lowness being an almost infallible sign of the flourishing 
condition of a people. It may be observed in passing that in 
the essay devoted to this subject he brings out a principle 
of human nature which economists too often overlook, " the 
constant and insatiable desire of the mind for exercise and 
employment," and the consequent action of ennui in prompting 
to exertion. 

With respect to commerce, he points to its natural founda- 
tion in what has since been called "the territorial division of 
labour," and proves that the prosperity of one nation, instead 
of being a hindrance, is a help to that of its neighbours. 
*' Ji^ot only as a man, but as a British subject," he says, '' I 
pray for the flourishing commerce of Germany, Spain, Italy, 
and even France itself." He condemns the " numberless bars, 
obstructions, and imposts which all nations of Europe, and 
none more than England, have put upon trade." Yet on the 
question of protection to national industry he is not quite at 



SYSTEM OF NATURAL LIBERTY. 8$ 

the free-trade point of view, for he approves of a tax on 
German linen as encouraging home manufactures, and of a 
tax on brandy as increasing the sale of rum and supporting 
our southern colonies. Indeed it has been justly observed 
that there are in liim several traces of a refined mercantilism, 
and that he represents a state of opinion in which the transi- 
tion from the old to the new views is not yet completely 
effected. 

We cannot do more than refer to the essay on taxes, in 
which, amongst other things, he repudiates the impot unique 
of the physiocrats, and to that on public credit, in which he 
criticises the "new paradox that public encumbrances are 
of themselves advantageous, independent of the necessity of 
contracting them," and objects, perhaps too absolutely, to the 
modern expedient of raising the money required for national 
enterprises by way of loan, and so shifting our burdens upon 
the shoulders of posterity. 

The characteristics of Hume, which are most important in 
the history of economic investigation, are (i) his practice of 
bringing economic facts into connection with all the weighty 
interests of social and political life, and (2) his tendency to 
introduce the historical . spirit into the study of those facts. 
He admirably illustrates the mutual action of the several 
branches of industry, and the influences of progress in the 
arts of production and in commerce on general civilisation, 
exhibits the striking contrasts of the ancient and modern 
system of life (see especially the essay On the Fopulousness 
of Ancient Nations), and considers almost every phenomenon 
which comes under discussion in its relations to the con- 
temporary stage of social development. It cannot be doubted 
that Hume exercised a most important influence on Adam 
Smith, who in the Wealth of Nations calls him "by far the 
most illustrious philosopher and historian of the present age," 
and who esteemed his character so highly that, after a friend- 
ship of many years had been terminated by Hume's decease, 
he declared him to have "approached as nearly to the ideal 



86 POLITICAL ECONOMY. 

of a perfectly wise and virtuous man as perhaps the nature of 
human frailty will permit." ) 

Josiah Tucker, den^ of Gloucester (d. 1799), holds a dis- 
tinguished place amou^g the immediate predecessors of Smith. 
Most of his numerous productions had direct reference to 
contemporary questions, and, though marked by much sagacity 
and penetration, are deficient in permanent interest. In some 
of these he urged the impolicy of restrictions on the trade 
of Ireland, advocated a nnion of that country with England, 
and recommended the recognition of the independence of the 
United States of America. The most important of liis general 
economic views are those relating to international commerce. 
He is an ardent supporter of free-trade doctrines, which he 
bases on the principles that there is between nations no 
necessary antagonism, but rather a harmony, of interests, and 
that' their several local advantages and different aptitudes 
naturally prompt them to exchange. He had not, however, 
got quite clear of mercantilism, and favoured bounties on ex- 
ported manufactures and the encouragement of population by 
a tax on celibacy. Dupont, and after him Blanqui, represent 
Tucker as a follower of the physiocrats, but there seems to be 
no ground for this opinion except his agreement with them 
on the subject of the freedom of trade. Turgot translated 
into French (1755), under the title of Questions Importantes 
sur le Commerce^ a tract by Tucker on The Expediency of a 
Law for the Naturalisation of Forevjn Protestants. 

In 1767 was published Sir James Steuai't's Inquiry into the 
Principles of Political Economy. This was one of the most 
unfortunate of books. It was the most complete and syste- 
matic survey of the science from the point of view of moderate 
mercantilism which had appeared in England. Steuart was 
a man of no ordinary abilities, and had prepared himself for 
his task by long and serious study. But the time for the 
mercantile doctrines was past, and the system of natural 
liberty was in possession of an intellectual ascendency which 
foreshadowed its political triumph. Nine years later the 



SYSTEM OF NATURAL LIBERTY. S7 

WeaUh of Nations was given to the ^rorld, a work as superior 
to Steiiart's in attractiveness of style as in scientific soundness. 
Thus the latter was predestined to fail, and in fact never 
exercised any considerable theoretic or practical influence. 
Smith never quotes or mentions it ; being acquainted with 
Steuart, whose conversation he said was better tlian his book, 
he probably wished to keep clear of controversy with him.^ 
The German economists have examined Steuart's treatise 
more carefully than English writers have commonly done ; 
and they recognise its high merits, especially in relation to the 
theory of value and the subject of population. They have 
also pointed out that, in the spirit of the best recent researcli, 
he has dwelt on the special characters which distinguish the 
economies proper to different nations and different grades in 
social progress. 

Coming now to the great name of Adam Smith (1 723-1 790), 
it is of the highest importance that we should rightly under- 
stand his position and justly estimate his claims. It is plainiv 
contrary to fact to represent him, as some have done, as the 
creator of political economy. The subject of social wealth 
had always in some degree, and increasingly in recent tinges, 
engaged the attention of philosophic minds. The study had 
even indisputably assumed a systematic character, and, from 
being an assemblage of fragmentary disquisitions on particular 
questions of national interest, had taken the form, notably 
in Turgot's Reflexions, of an organised body of doctrine. The 
truth is, that Smith took up the science when it was already 
considerably advanced ; and it was this very circumstance 
which enabled him, by the production of a classical treatise, 
to render most of his predecessors obsolete.' But, whilst all 
the economic labours of the preceding centuries prepared the 
way for him, they did not anticipate his work. His appear- 

^ Smith says, in a letter to Pulteney (1772) — " I have the same opinion 
of Sir James Steiiart's book that ycHi have. Without once mentioning 
it, I flatter myself that any false principle in it will meet with a clear 
and distinct confutation in mine." 



88 POLITICAL ECONOMY. 

ance at an earlier stagb, or without those previous labours^ 
would be inconceivable ; but he built, on the foundation 
which had been laid by others, much of his own that was 
precious and enduring. 

Even those who do not fall into the error of making Smith 
the creator of the science, often separate him too broadly from 
Quesnay and his followers, and represent the history of modern 
Economics as consisting of the successive rise and reign of 
three doctrines — the mercantile, the physiocratic, and the 
Smithian. The last two are, it is true, at variance in some 
even important respects. But it is evident, and Smith him- 
self felt, that their agreements were much more fundamental 
than their differences ; and, if we regard them as historical 
forces, they must be considered as working towards identical 
ends. They both urged society towards the abolition of the 
previously prevailing industrial policy of European Govern- 
ments ; and their arguments against that policy rested essenti- 
ally on the same grounds. Whilst Smith's criticism was more 
searching and complete, he also analysed more correctly than 
the physiocrats some classes of economic phenomena, — in par- 
ticular dispelling the illusions into which they had fallen 
with respect to the unproductive nature of manufactures and 
commerce. Their school disappeared from the scientific field, 
not merely because it met with a political check in the person 
of Turgot, but because, as we have already said, the Wealth 
of Nations absorbed into itself all that was valuable in their 
teaching, whilst it continued more effectually the impulse 
they had given to the necessary work of demolition. 

( The history of economic opinion in modern times, down 
to the third decade of our own century, is, in fact, strictly 
bipartite. The first stage is filled with the mercantile system, 
which, as we have shown, was rather a practical policy than a 
speculative doctrine, and which came into existence as the 
spontaneous growth of social conditions acting on minds not 
trained to scientific habits. The second stage is occupied 
with the gradual rise and ultimate ascendency of another 



SYSTEM OF NATURAL LIBERTY. 8g 

system founded on the idea of the right of the individual to 
an unimpeded sphere for the exercise of his economic activity. 
With the hatter, which is best designated as the " system of 
natural liberty," we ought to associate the memory of the 
physiocrats as well as that of Smith, without, however, main- 
taining their services to have been equal to his. 

The teaching of political economy was in the Scottish uni- 
versities associated with that of moral philosophy. Smitli, as 
we are told, conceived the entire subject he had to treat in 
his public lectures as divisible into four heads, the first of 
w^hich was natural theology, the second ethics, the third 
jurisprudence; whilst in the fourth "he examined those poli- 
tical regulations which are founded upon expediency, and 
which are calculated to increase the riches, the power, and the 
prosperity of a state." The last two branches of inquiry are 
regarded as forming but a single body of doctrine in the well- 
known passage of the Theory of Moral Sentiments in which 
the author promises to give in another discourse " an account 
of the general principles of law and government, and of the 
different revolutions they have undergone in the different ages 
and periods of society, not only in what concerns justice, but 
in what concerns police, revenue, and arms, and whatever else 
is the subject of law." This shows how little it w^as Smith's 
habit to separate (except provisionally), in his conceptions 
or his researches, the economic phenomena of society from 
all the rest. The words above quoted have, indeed, been not 
unjustly described as containing " an anticipation, wonderful 
for his period, of general Sociology, both statical and dynami- 
cal, an anticipation which becomes still more remarkable when 
we learn from his literary executors that he had formed the 
plan of a connected history of the liberal sciences and elegant 
arts, which must have added to the brandies of social study 
already enumerated a view of the intellectual progress of 
society.^' Though these large designs were never carried out 
in their integrity, as indeed at that period they could not have 
been adequately realised, it has resulted from them th^t, though 



go POLITICAL ECONOMY. 

economic phenomena form the special suhject of the Wealth 
of Nations, Smith yet incorporated into that work mncth that 
relates to the otlier social aspects, incurring thereby the censnre 
of some of his followers, who insist with pedantic narrowness 
on the strict isolation of the economic domain. 

There has been much discussion on the question — -What is 
the scientific method followed by Smith in his great work I 
By some it is considered to have been purely deductive, a 
view which Buckle has perhaps carried to the greatest ex- 
treme. He asserts that in Scotland the inductive method 
was unknown, that the inductive philosophy exercised no 
influence on Scottish thinkers; and, tliough Smith spent 
some of the most important years of his youth in England, 
where the inductive method was supreme, and though he was 
widely read in general philosophical literature, he yet tliinks 
he adopted the deductive method because it was habitually 
followed in Scotland, — and this though Buckle maintains 
that it is the only appropriate, or even possible, method in 
political economy, which surely would have been a sufficient 
reason for choosing it. That the inductive spirit exercised 
no influence on Scottish philosophers is certainly not true ; 
as will be presently shown, Montesquieu, whose method is 
essentially inductive, was in Smith's time studied with quite 
peculiar care and regarded with special veneration by Smith's 
fellow-countrymen. As to Smith himself, what may justly 
be said of him is that the detluctive bent was certainly not 
the predominant character of his mind, nor did his great 
excellence lie in the ^'dialectic skill " which Buckle ascribes 
to him. What strikes us most in his book is his wide and 
keen observation of social facts, and his perpetual tendency 
to dwxll on these and elicit their significance, in>tead of 
drawing conclusions from abstract principles by elaborate 
chains of reasoning. It is this habit of his mind which 
gives us, in reading him, so strong and abiding a sense of 
being in contact with the realities of life. 

That Smith does, however, largely employ the deductive 



SYSTEM OF NATURAL LIBERTY. 91 

metliod is certain ; and that method is quite legitimate when 
the premises from which the deduction sets out are known 
universal facts of human nature and properties of external 
objects. Whether this mode of proceeding will carry us far 
may indeed well be doubted ; but its soundness cannot be 
disputed. But there is another vicious species of deduction 
which, as Cliffe Leslie has shown, seriously tainted the 
philosophy of Smith, — in which the premises are not facts 
ascertained by observation, but the same a priori assumptions, 
half theological half metaphysical, respecting a supposed 
harmonious and beneficent natural order of things which 
we found in the physiocrats, and which, as we saw, were 
embodied in the name of that sect. In his view, Nature has 
made provision for social wellbeing by the principle of the 
human constitution which prompts every man to better his 
condition: the individual aims only at his private gain, but 
in doing so is "led by an invisible hand" to promote the 
public good, which was no part of his intention ; human 
institutions, by interfering with the action of this principle 
in the name of the public interest, defeat their own end ; but, 
when all systems of preference or restraint are taken away, 
*' the obvious and simple system of natural liberty establishes 
itself of its own accord." This theory is, of course, not 
explicitly presented by Smith as a foundation of his econo- 
mic doctrines, but it is really the secret substratum on which 
they rest. Yet, whilst such latent postulates warped his 
view of things, they did not entirely determine his method. 
His native bent towards the study of things as they are pre- 
served him from extravagances into which many of his fol- 
lowers have fallen. But besides this, as Leslie has pointed 
out, the influence of Montesquieu tended to counterbalance 
the theoretic prepossessions produced by the doctrine of the 
jus natuTiE, That great thinker, thougli he could not, at his 
period, understand the historical method which is truly ap- 
propriate to sociological inquiry, yet founded his conclusions 
on induction. It is true, as Comte has remarked, that hi? 



92 POLITICAL ECONOMY. 

accumulation of facts, borrowed from the most different 
states of civilisation, and not subjected to philosophic criti- 
cism, necessarily remained on the whole sterile, or at least 
could not essentially advance the study of society much 
beyond the point at which he found it. His merit, as we 
have before mentioned, lay in the recognition of the subjection 
of all social phenomena to natural laws, not in the discovery 
of those laws. But this limitation was overlooked by the 
philosophers of the time of Smith, who were much attracted 
by the system he followed of tracing social facts to the special 
circumstances, physical or moral, of the communities in which 
they were observed. Leslie has shown that Lord Kaimes, 
Dalrymple, and Millar — contemporaries of Smith, and the 
last his pupil — were influenced by Montesquieu; and he 
might have added the more eminent name of Ferguson, whose 
respect and admiration for the great Frenchman are expressed 
in striking terms in his History of Civil Society.'^ We are 
even informed that Smith himself in his later years was 
occupied in preparing a commentary on the Espi*it des Lois.^ 

^ "When I recollect what the President Montesquieu has written, I 
am at a loss to tell why I should treat of human affairs ; but I too am 
instigated by my reflections and my sentiments ; and I may utter them 
more to the comprehension of ordinary capacities, because I am more 
on the level of ordinary men. . . . The reader should be referred to what 
has been already delivered on the subject by this profound politician and 
amiable moralist " (Part I. sect. lo). Hume speaks of Montesquieu as 
an "illustrious writer," who "has established ... a system of political 
knowledge, which abounds in ingenious and brilliant thoughts and is not 
wanting in solidity " [Principles of Morals, sect. 3, and note). 

2 The following paragraph appeared in the Moniteur Universel of 
March II, 1790 : — "On pretend que le celebre M. Smith, connu si 
avantageusement par son traite des causes de la richesse des nations, 
prepare et va mettre a Fimpression un examen critique de I'Esprit des 
Lois ; c'est le resultat de plusieurs ann^es de meditation, et Ton sait 
assez ce qu'on a droit d'attendre d'une tete comme celle de M. Smith. 
Ce livre fera epoque dans I'histoire de la politique et de la philosophic , 
tel est du moins le jugement qu'en portent des gens instruits qui en 
connaissent des fragments dont ils ne parlent qu'avec un enthousiasm« 
du plus heureux augure." 



SYSTEM OF NATURAL LIBERTY. 93 

He was thus affected by two different and incongruous systems 
of thought, — one setting out from an imaginary code of nature 
intended for the benefit of man, and leading to an optimistic 
view of the economic constitution founded on enlightened self- 
interest ; the other following inductive processes, and seeking 
to explain the several states in which hun^an societies are ■ 
found existing, as results of circumstances or institutions 
which have been in actual operation. And we find accordingly 
in his gj'eat work a combination of these two modes of treat- 
ment — inductive inquiry on the one hand, and, on the other, 
a ^priori speculation founded on the ^* Mature '* hypothesis. 
The latter vicious proceeding has in some of his followers 
been greatly aggravated, while the countervailing spirit of 
inductive investigation has fallen into the background, and 
indeed the necessity or utility of any such investigation in 
the economic field has been sometimes altogether denied. 

Some have represented Smith's work as of so loose a 
texture and so defective in arrangement that it may be justly 
described as consisting of a series of monographs. But this 
is certainly an exaggeration. The book, it is true, is not 
framed on a rigid mould, nor is there any parade of systematic 
divisions and subdivisions ; and this doubtless recommended 
it to men of the world and of business, for whose instructioix 
it was, at least primarily, intended. But, as a body of exposi- 
tion, it has the real and pervading unity which results from 
a mode of thinking homogeneous throughout and the general 
absence of such contradictions as would arise from an imper- 
fect digestion of the subject. 

Smith sets out from the thought that the annual labour of 
a nation is the source from which it derives its supply of the 
necessaries and conveniences of life. He does not of course 
contemplate labour as the only factor in production ; but it 
has been supposed that by emphasising it at the outset he at 
once strikes the note of difference between himself on the one 
hand and both the mercantilists and the physiocrats on the 
other. The improvement in the productiveness of labour 



94 POLITICAL ECONOMY. 

depends largely on its division ; and he proceeds accordingly 
to give his unrivalled exposition of that principle, of the 
grounds on which it rests, and of its greater applicability to 
manufactures than to agriculture, in consequence of which the 
latter relatively lags behind in the course of economic develop- 
ment.^ The origin of the division of labour he finds in the 
propensity of human nature " to truck, barter, or exchange 
one thing for another." He shows that a certain accumulation 
of capital is a condition precedent of this division, and that 
the degree to which it can be carried is dependent on the 
extent of the market. When the division of labour has been 
established, each member of the society must have recourse 
to the others for the supply of most of his wants ; a medium 
of exchange is thus found to be necessary, and money comes 
into use. The exchange of goods against each other or against 
money gives rise to the notion of value. This word has two 
meanings — that of utility, and that of purchasing power ; the 
one may be called value in use, the other value in exchange. 
Merely mentioning the former. Smith goes on to study the 
latter. What, he asks, is the measure of value ? what regu- 
lates the amount of one thing which will be given for another*? 
^' Labour," Smith answers, " is the real measure of the ex- 
changeable value of all commodities." *' Equal quantities 
of labour, at all times and places, are of equal value to the 
labourer." ^ «' Labour alone, therefore, never varying in its 
own value, is alone the ultimate and real standard by which 
the value of all commodities can at all times and places be 
estimated and compared. It is their real price ; money is 
their nominal price only." Money, however, is in men's 
actual transactions the measure of value, as well as the vehicle 

^ Smith takes no account in tiiis place of the evils which may arise 
from a highly developed division of labour. But see Bk. v. chap. i. 

- This sentence, which on close examination will be found to have no 
definite intelligible sense, affords a good example of the way in w^hich 
metaphysical modes of thought obscure economic ideas. What is a 
"quantity of labour," the kind of labour being undetermined? And 
what is meant by the phrase "of equal value " ? 



SYSTEM OF NATURAL LIBERTY. 95 

of exchanf^e ; and the precious metals are best suited for tliig 
function, as varying little in tlieir own value for periods of 
moderate length ; for distant times, corn is a better standard 
of comparison. In relation to the earliest social stage, we 
need consider nothing but the amount of labour emp'.oyed in 
the production of an article as determining its exchange value ; 
but in more advanced periods price is complex, and consists 
in tlie most general case of three elements — wages, profit, and 
rent. Wages are the reward of labour. Profit arises as soon 
as stock, being accumulated in the hands of one person, is 
employed by him in setting others to work, and supplying 
them with materials and subsistence, in order to make a gain 
by what they produce. Rent arises as soon as the land of a 
country has all become private property ; " the landlords, like 
all other men, love to reap where they never sowed, and de- 
mand a rent even for its natural produce." In every improved 
society, then, these three elements enter more or less into the 
price of the far greater part of commodities. There is in every 
society or neighbourhood an ordinary or average rate of wages 
and profit in every different employment of labour and stock, 
r« gulated by principles to be explained hereafter, as also an 
ordinary or average rate of rent. These may be called the 
natural rates at the time when and the place where they pre- 
vail ; and the natural price of a commodity is what is sufficient 
to pay for the rent of the land,^ the wages of the labour, and 
the profit of the stock necessary for bringing the commodity 
to market. The market price may rise above or fall below 
the amount so fixed, being determined by the proportion 
between the quantity brought to market and the demand of 
those who are willing to pay the natural price. Towards the 
natural price as a centre the market price, regulated by com- 
petition, constantly gravitates. Some commodities, however, 
are subject to a monopoly of production, whether from the 
peculiarities of a locality or from legal privilege ; their price 

^ Smith's expressi(3ns on this point are lax, as will be seen when we 
come to examine the (so-called) Rii;ardian Theory of Rent. 



96 POLITICAL ECONOMY. 

is always the highest that can be got ; the natural price ol 
other commodities is the lowest which can be taken for any 
length of time together. The three component parts or factors 
of price vary with the circumstances of the society. The rate 
of wages is determined by a " dispute " or struggle of opposite 
interests between the employer and the workman. A minimum 
rate is fixed by the condition that they must be at least suffi- 
cient to enable a man and his wife to maintain themselves 
and, in general, bring up a family. The excess above this 
will depend on the circumstances of the country, and the con- 
sequent demand for labour, — wages being high Avhen national 
wealth is increasing, low when it is declining. The same 
circumstances determine the variation of profits, but in an 
opposite direction ; the increase of stock, which raises wages, 
tending to lower profit through the mutual competition of 
capitalists. " The whole of the advantages and disadvantages 
of the different employments of labour and stock must, in the 
same neighbourhood, be either perfectly equal or continually 
tending to equality ; " if one had greatly the advantage over 
the others, people would crowd into it, and the level would 
soon be restored. Yet pecuniary wages and profits are very 
different in different employments, — either from certain cir- 
cumstances affecting the employments, which recommend or 
disparage them in men's notions, or from national policy, 
''which nowhere leaves things at perfect liberty." Here 
follows Smith's admirable exposition of the causes which pro- 
duce the inequalities in wages and profits just referred to, a 
passage affording ample evidence of his habits of nice observa- 
tion of the less obvious traits in human nature, and also of 
the operation both of these and of social institutions on eco- 
nomic facts. The rent of land comes next to be considered, 
as the last of the three elements of price. Rent is a mono- 
poly price, equal, not to what the landlord could afford to take, 
but to what the farmer can afford to give. " Such parts only 
of the produce of land can commonly be brought to market, 
of which the ordinary price is sufficient to replace the stock 



SYSTEM OF NATURAL LIBERTY. 97 

whicli must be employed in bringing them thither, togetbei 
with the ordinary profits. If the ordinary price is more tha* 
this, the surplus part ^vill naturally go to the rent of tlie land. 
If it is not more, though the commodity may be brought to 
market, it can afford no rent to the landlord. Whether the 
price is or is not more depends on the demand." "Kent, 
therefore, enters into the price of commodities in a different 
way from wages and profits. High or low wages and profit 
are the causes of high or low price ; high or low rent is the 
effect of it." 

Rent, wages, and profits, as they are the elements of price, 
are also the constituents of income ; and the three great 
orders of every civilised society, from whose revenues that of 
every other order is ultimately derived, are the landlords, the 
labourers, and the capitalists. The relation of the interests 
of these three classes to those of society at large is different. 
The interest of the landlord always coincides with the general 
interest : whatever promotes or obstructs the one has the same 
effect on the other. So also does that of the labourer : when 
the wealth of the nation is progressive, his wages are high ; 
they are low when it is stationary or retrogressive. *'The 
interest of the third order has not the same connection with 
the general interest of the society as that of the other two ; 
... it is always in some respects different from and opposite 
to that of the public." 

The subject of the second book is " the nature, accumulation, 
and improvement of stock." A man's whole stock consists 
of two portions — that which is reserved for his immediate 
consumption, and that which is employed so as to yield a 
revenue to its owner. This latter, which is his " capital," is 
divisible into the two classes of "fixed" and ''circulating." 
The first is such as yields a profit without passing into other 
hands. The second consists of such goods, raised, manufac- 
tured, or purchased, as are sold for a profit and replaced by 
other goods ; this sort of capital is therefore constantly going 
from and returning to the hands of its owner. The whole 

G 



^8 POLITICAL ECONOMY. 

capital of a society falls under the same two heads. Its fixed 
capital consists chiefly of (i) machines, (2) buildings which are 
the means of procuring a revenue, (3) agricultural improve- 
ments, and (4) the acquired and useful abilities of all members 
of the society (since sometimes known as " personal capital "). 
Its circulating capital is also composed of four parts — (1) 
money, (2) provisions in the hands of the dealers, (3) materials, 
and (4) completed work in the hands of the manufacturer or 
merchant. Next comes the distinction of the gross national 
revenue from the net, — the first being the whole produce of 
the land and labour of a country, the second what remains 
after deducting the expense of maintaining the fixed capital 
of the country and that part of its circulating capital which 
consists of money. Money, " the great wheel of circulation," 
is altogether difi'erent from the goods which are circulated by 
means of it ; it is a costly instrument by means of which all 
that each individual receives is distributed to him ; and the 
expenditure required, first to provide it, and afterwards to 
maintain it, is a deduction from the net revenue of the society. 
In development of this consideration. Smith goes on to explain 
the gain to the community arising from the substitution of 
paper money for that composed of the precious metals ; and 
here occurs the remarkable illustration in which the use of gold 
and silver money is compared to a highway on the ground, 
that of paper money to a waggon-way through the air. In 
proceeding to consider the accumulation of capital, he is led to 
the distinction betw^een productive and unproductive labour, 
— the former being that which is fixed or realised in a 
particular object or vendible article, the latter that which is 
not so realised. The former is exemplified in the labour of 
the manufacturing workman, the latter in that of the menial 
servant. A broad line of demarcation is thus drawn between 
the labour which results in commodities or increased value 
of commodities, and that wdiich does no more than render 
services : the former is productive, the latter unproductive. 
** Productive " is by no means equivalent to *' useful : " th« 



SYSTEM OF NATURAL LIBERTY. 99 

labours of the magistrate, tlie soldier, the churchman, lawyer, 
and physician are, in Smith's sense, unproductive. Productive 
labourers alone are employed out of capital ; unproductive 
labourers, as well as these who do not labour at all, are all 
maintained by revenue. In advancing industrial communities, 
the portion of annual produce set apart as capital bears an 
increasing proportion to that which is immediately destined to 
constitute a revenue, either as rent or as profit. Parsimony- 
is the source of the increase of capital ; by augmenting the 
fund devoted to the maintenance of productive hands, it puts 
in motion an additional quantity of industry, which adds to 
the value of the annual produce. What is annually saved is 
as regularly consumed as what is spent, but by a different set 
of persons, by productive labourers instead of idlers or unpro- 
ductive labourers ; and the former reproduce with a profit 
the value of their consumption. The prodigal, encroaching 
on his capital, diminishes, as far as in him lies, the amount of 
productive labour, and so the wealih of the country; nor is 
this result affected by his expenditure being on home-made, 
as distinct from foreign, commodities. Every prodigal, there- 
fore, is a public enemy ; every frugal man a public benefactor. 
The only mode of increasing the annual produce of the land 
and labour is to increase either the number of productive 
labourers or the productive powers of those labourers. Either 
process will in general require additional capital, the former to 
maintain the new labourers, the latter to provide improved 
machinery or to enable the employer to introduce a more 
complete division of lal^our. In what are commonly called 
loans of money, it is not really the money, but the money^s 
worth, that the borrower wants ; and the lender really assigns 
to him the right to a certain portion of the annual produce of 
the land and labour of the country. As the general capital of 
a country increases, so also does the particular portion of it 
from which the possessors wish to derive a revenue without 
being at the trouble of employing it themselves ; and, as the 
quantity of stock thus available for loans is augmented, the 



loo POLITICAL ECONOMY. 

interest diminishes, not merely ** from the general causes which 
make the market price of things commonly diminish as theii 
quantity increases," hut hecause, with the increase of capitah 
" it becomes gradually more and more difficult to find within 
the country a profitable metliod of employing any new capital," 
— whence arises a competition between different capitals, and 
a lowering of profits, which must diminish the price which 
can be paid for the use of capital, or in other words the rate 
of interest. It was formerly wrongly supposed, and even Locke 
and Montesquieu did not escape this error, that the fall in the 
value of the precious metals consequent on the discovery of 
the American mines was the real cause of the permanent lower- 
ing of the rate of interest in Europe. But this view, already 
refuted by Hume, is easily seen to be erroneous. ** In some 
countries the interest of money has been prohibited by law. 
But, as something can everywhere be made by the use of 
money, something ought everywhere to be paid for the use of 
it," and will in fact be paid for it ; and the prohibition will 
only heighten the evil of usury by increasing the risk to the 
lender. The legal rate should be a very little above the lowest 
market rate ; sober people will then be preferred as borrowers 
to prodigals and projectors, who at a higher legal rate would 
have an advantage over them, being alone willing to ofi'er that 
higher rate.^ 

As to the difi'erent employments of capital, the quantity of 
productive labour put in motion by an equal amount varies 
extremely according as that amount is employed — (i) in the 
improvement of lands, mines, or fisheries, (2) in manufactures, 
(3) in wholesale or (4) retail trade. In agriculture *' Nature 
labours along with man," and not only the capital cf the 
farmer is reproduced with his profits, but also the rent of the 
landlord. It is therefore the employment of a given capital 
which is most advantageous to society. Next in order come 
manufactures; then wholesale trade — first the home trade, 

^ See p. no, on Bentham« 



SYSTEM OF NATURAL LIBERTY. loi 

secondly the foreign trade of consumption, last the carryin<* 
trade. All these employments of capital, however, are not- 
only advantageous, but necessar}^, and will introduce them- 
selves in the due degree, if they are left to the spontaneous 
action of individual enterprise. 

Thsse first two books contain Smith's general economic 
scheme; and we have stated it as fully as was consistent 
with the necessary brevity, because from this formulation of 
doctrine the English classical school set out, and round it the 
discussions of more recent times in different countries have 

-in a great measure revolved. Some of the criticisms of his 
- 
successors and their modifications of his doctrines will come 

under our notice as we proceed. 

The critical philosophers of the eighteenth century were 
often destitute of the historical spirit, which was no part of the 
endowment needed for their principal social office. But some 
of the most eminent of them, especially in Scotland, showed a 
marked capacity and predilection for historical studies. Smith 
was amongst the latter ; Knies and others justly remark on 
the masterly sketches of this kind which occur in the Wealth 
of Nations, The longest and most elaborate of these occupies 
the third book ; it is an account of the course followed by the 
nations of modern Europe in the successive development of 
the several forms of industry. It affords a curious example 
of the effect of doctrinal prepossessions in obscuring the 
results of historical inquiry. Whilst he correctly describes 
the European movement of industry, and explains it as aris- 
ing out of adequate social causes, he yet, in accordance with 
the absolute principles which tainted his philosophy, protests 
against it as involving an entire inversion of the "natural 
order of things." First agriculture, then manufactures, lastly 
foreign commerce ; any other order than this he considers 
''unnatural and retrograde." Hume, a more purely positive 
thinker, simply sees the facts, accepts them, and classes them 
under a general law. "It is a violent method," he says, " and 
in most cases impracticable, to oblige the labourer to toil in 



I02 POLITICAL ECONOMY. 

order to raise from the laiid more tlian Avhat subsists himsell • 
and family. Furnish him witli manufactures and commodities, 
and he will do it of himself." ''If we consult liistory, we 
shall find that, in most nations, foreign trade has preceded any 
refinement in home manufactures, and given birth to domestic 
luxury." 

The fourth book is principally devoted to the elaborate 
and exhaustive polemic against the mercantile system which 
finally drove it from the field of science, and has exercised a 
powerful influence on economic legislation. ^A^hen protection 
is now advocated, it is commonly on different grounds from 
those which were in current use before the time of Smith/ 1 
He believed that to look for the restoration of freedom of 
foreign trade in Great Britain would have been " as absurd 
as to expect that an Oceana or Utopia should be established 
in it;" yet, mainly in consequence of his labours, that object 
has been completely attained ; and it has lately been said 
with justice that free trade might have been more generally 
accepted by other nations if the patient reasoning of Smith 
had not been replaced by dogmatism. His teaching on the 
subject is not altogether unqualified ; but, on the whole, 
with respect to exchanges of every kind, where economic 
motives alone enter, his voice is in favour of freedom. He 
has regard, however, to political as well as economic interests, 
and on the ground that " defence is of much more importance 
than opulence," pronounces the Navigation Act to have been 
*' perhaps the wisest of all the commercial regulations of 
England." Whilst objecting to the prevention of the export 
of wool, he proposes a tax on that export as somewhat less 
injurious to the interest of growers than the prohibition, 
whilst it would "afford a sufficient advantage " to the domestic 
over the foreign manufacturer. This is, perhaps, his most 
marked deviation from the rigour of principle ; it was doubt- 
less a cpn cession to popular opinion with a view to an attain- 
able practical improvement. The wisdom of retaliation in 
order to procure the repeal of high duties or prohibitions 



SYSTEM OF NATURAL LIBERTY. 103 

imposed by foreign Governments depends, he says, altogether 
on the likelihood of its success in effecting the object aimed 
at, but he does not conceal his contempt for the practice of 
such expedients. The restoration of freedom in any manu- 
facture, when it has grown to considerable dimensions ]>y 
means of high duties, should, he thinks, from motives of 
humanity, be brought about only by degrees and with cir- 
cumspection, — though the amount of evil which, would be 
caused by the immediate abolition of the duties is, in his 
opinion, commonly exaggerated. The case in which J. S. 
Mill would tolerate protection — that, namely, in which an in- 
dustry well adapted to a country is kept down by the acquired 
ascendency of foreign producers — is referred to by Smith ; 
but he is opposed to the admission of this exception for 
reasons which do not appear to be conclusive.^ He is perhaps 
scarcely consistent in approving the concessioji of tempo- 
rary monopolies to joint-stock companies undertaking risky 
enterprises " of which the public is afterwards to reap the 
benefit."-^ 

He is less absolute in his doctrine of Governmental non- 
interference when he comes to consider in his fifth book 
the '* expenses of the sovereign or the commonwealth." He 
recognises as coming within the functions of the state the 
erection and maintenance of tliose public institutions and 
public works which, though advantageous to the society, 
could not repay, and therefore must not be thrown upon, 

^ It must, however, always be borne in mind that the adoption by a stats 
of this sort of protection is liable to three practical dangers : — (i) of en- 
couragement being procured through political influences for industries 
which could never have an independent healthy life in the country ; (2) of 
such encouragement being continued beyond the term daring which it 
might be usefully given ; (3) of a retaliatory spirit of exclusion being 
provoked in other communities. 

'^ Professor Bastable calls the author's attention to the interesting 
fact that the proposal of an export duty on wool and the justification 
of a temporary monopoly to joint-stock companies both appear for th« ■ 
first time in the edition of 1784. 



104 POLITICAL ECONOMY. 

individuals or small groups of individuals. He remarks in a 
just historical spirit that the performance of these functions 
requires very different degrees of expense in the different 
periods of society. Besides the institutions and works in- 
tende<l for public defence and the administration of justice, 
and those required for facilitating the commerce of the society, 
lie considers tliose necessary for promoting the instruction of 
the people. He thinks the public at large may with propriety 
not only facilitate and encourage, Lut even impose upon 
almost the whole body of the people, the acquisition in youth 
of tlie most essential elements of education. He suggests 
as the mode of enforcing this obligation the requirement 
of submission to a test examination ^' before any one could 
obtain the freedom in any corporation, or be allowed to set 
up a trade in any village or town corporate.'^ Similarly, he 
is of opinion that some probation, even in the higher and 
more difficult sciences, might be enforced as a condition of 
exercising any liberal profession, or becoming a candidate for 
any honourable office. The expense of the institutions for 
religious instruction as well as for general education, he holds, 
may without injustice be defrayed out of the funds of the whole 
society, though he would apparently prefer that it should be 
met by the voluntary contributions of those who think they 
have occasion for such education or instruction. There is 
much that is sound, as well as interesting and suggestive, in 
this fifth book, in which he shows a political instinct and a 
breadth of view by which he is favourably contrasted with the 
Manchester school. But, if we may say so without disrespect 
to so great a man, there are traces in it of what is now 
called Philistinism — a low view of the ends of art and poetry 
— which arose perhaps in part from personal defect, though 
it was common enough in even the higher minds in his 
century. There are also indications of a certain deadness ta 
the lofty aims and perennial importance of religion, which 
was no doubt chiefly due to the influences of an age when 
tlie critical spirit was doing an indispensable work, in the 



SYSTEM OF NATURAL LIBERTY. 105 

performance of wliicli the transitory was apt to be confounded 
with the permanent. 

For the sake of considering as a whole Smith's view of tlie 
functions of government, we have postponed noticing his treat- 
ment of the physiocratic system, which occupies a part of liis 
fourth book. He had formed the acquaintance of Quesnay, 
Turgot, and other members of their group during liis sojourn 
in France in 1765, and would, as he told Dugald Stewart, had 
the patriarch of tlie school lived long enough, have dedicated 
to him the Wealth of Nations. He declares that, with all its 
imperfections, the system of Quesnay is " perhaps the nearest 
approximation to the truth that had yet appeared on the sub- 
ject of political economy." Yet he seems not to be adequately 
conscious of the degree of coincidence between his own doc- 
trines and those of the physiocrats. Dupont de Kemours 
complained that he did not do Quesnay the justice of recognis- 
ing him as his spiritual father. It is, however, alleged, on the 
other side, that already in 1753 Smith had been teaching as 
professor a body of economic doctrine the same in its broad 
features with that contained in his great work. This is indeed 
said by Stewart ; and, though he gives no evidence of it, it is 
possibly quite true ; if so, Smith's doctrinal descent must be 
traced rather from Hume than from the French school. The 
principal error of this school, that, namely, of representing 
agricultural labour as alone productive, he refutes in the fourth 
book, though in a manner which has not always been con- 
sidered effective. Traces of the influence of their mistaken 
view appear to remain in his own work, as, for example, his 
assertion that in agriculture nature labours along with man, 
whilst in manufactures nature does nothing, man does all ; and 
his distinction between productive and unproductive labour, 
which was doubtless suggested by theii use of those epithets, 
and which is scarcely consistent with his recognition of 
what is now called " personal capital." To the same source 
MCulloch and others refer the origin of Smith's view, which 
they represent as an obvious error, that * individual advantage 



io6 POLITICAL ECONOMY. 

is not always a true test of the public advautageousness of dif 
ferent employmeuts." But that view is really quite correct, 
as Professor Nicholson has clearly shown.^ That the form 
taken by the use of capital, profits being given, is not indif- 
ferent to the working class as a whole even Ricardo admitted ; 
and Cairnes, as we shall see, built on this consideration some 
of the most far-reaching conclusions in his Leading Principles, 

On Smith's theory of taxation in his fifth book it is not 
necessary for us to dwell. The well-known canons which 
he lays down as prescribing the essentials of a good system 
have been generally accepted. They have lately been severely 
criticised by Professor Walker — of whose objections, however, 
there is only one which appears to be well founded. Smith 
seems to favour the view that the contribution of the indi- 
vidual to public expenses may be regarded as payment for 
the services rendered to him by the state, and ought to be 
proportional to the extent of those services. If he held this 
opinion, which some of his expressions imply, he was certainly 
so far wrong in principle. 

"We shall not be held to anticipate unduly if we remark 
here on the w^ay in which opinion, revolted by the aberrations 
of some of Smitli's successors, has tended to turn from the 
disciples to the master. A strong sense of his compara- 
tive freedom" from the vicious tendencies of Ricardo and his 
followers has recently prompted the suggestion that we ought 
now to recur to Smith, and take up once more from him the 
line of the economical succession But notwithstanding his 
indisputable superiority, and whikt fully recognising the great 
services rendered by his immortal work, we must not forget 
that, as has been already said, that work was, on the whole, 
a product, though an exceptionally eminent one, of the negative 
philosophy of the last century, resting largely in its ultimate 
foundation on metaphysical bases. The mind of Smith was 
mainly occupied with the work of criticism so urgent in hia 

* In the Introductory Essay to his edition of the Wealth of Nations, 



SYSTEM OF NATURAL LIBERTY. lo; 

time; his principal task was to discredit and overtlirow tlie 
economic system then prevalent, and to demonstrate the 
radical unfitness of the existing European Governments to 
direct the industrial movement. This office of his fell in 
with, and formed a part of, the general work of demolition 
carried on by the thinkers who gave to the eighteenth century 
its characteristic tone. It is to his honour that, besides this 
destructive operation, he contributed valuable elements to the 
preparation of an organic system of thought and of life. In his 
special domain he has not merely extinguished many errors 
and prejudices, and cleared the ground for truth, but has left 
us a permanent possession in the judicious analyses of economic 
facts and ideas, the wise practical suggestions, and the luminous 
indications of all kinds with which his work abounds. Be- 
longing to the best philosophical school of his period, that 
with which the names of Hume and Diderot are associated, 
he tended strongly towards the positive point of view. But 
it was not possible for him to attain it; and the final and 
fully normal treeatment of the economic life of societies must 
be constituted on other and more lasting foundations than 
those which underlie his imposing construction. 

It has been well said that of philosophic doctrines the saying 
** By their fruits ye shall know them " is eminently true. And 
it cannot be doubted that the germs of the vicious methods 
and false or exaggerated theories of Smith's successors are to 
be found in his own work, thougli his good sense and practical 
bent prevented his following out his principles to their extreme 
consequences. The objections of Hildebrand and others to 
the entire historical development of doctrine which the Germans 
designate as " Smithianismus " are regarded by those critics 
as applicable, not merely to his school as a whole, but, though 
in a less degree, to himself. The following are the most 
important of these objections. It is said — (i.) Smith's con- 
ception of the social economy is essentially individualistic. 
In this he falls in with the general character of the negative 
philosophy of his age. That philosophy, in its most typical 



io8 POLITICAL ECONOMY. 

forms, even denied the natural existence of the disinterestec] 
affections, and explained the altruistic feelin,L;s as secondary 
results of self-love. Smith, however, like Hume, rejected 
these extreme views ; and hence it has been held that in the 
Wealth of Nations he consciously, though tacitly, abstracted 
from the benevolent principles in human nature, and as a 
logical artifice supposed an ^* economic man " actuated by purely 
selfish motives. However this may be, he certainly places 
himself habitually at the point of view of the individual, whom 
he treats as a purely egoistic force, working uniformly in the 
direction of private gain, without regard to the good of others 
or of the community at large. (2.) He justifies this personal 
attitude by its consequences, presenting the optimistic view 
that the good of the community is best attained through 
the free-play of individual cupidities, provided only that the 
law prevents the interference of one member of the society 
with the self-seeking action of another. He assumes Avith 
the negative school at large — though he has passages which 
are not in harmony with these propositions — that every one 
knows his true interest and will pursue it, and that the 
economic advantage of the individual coincides with that of 
the society. To this last conclusion he is secretly led, as we 
have seen, by a priori theological ideas, and also by meta- 
physical conceptions of a supposed system of nature, natural 
right, and natural liberty. (3.) By this reduction of every 
question to one of individual gain, he is led to a too exclusive 
consideration of exchange value as distinct from wealth in 
the proper sense. This, whilst lending a mechanical facility 
in arriving at conclusions, gives a superficial character te 
economic investigation, divorcing it from the physical and 
biological sciences, excluding the question of real social 
utility, leaving no room for a criticism of production, and 
leading to a denial, like J. S. Mill's, of any economic doctrine 
dealing with consumption — in other words, with the use of 
wealth. . (4.) In condemning the existing industrial policy, 
he tends too much towards a glorification of non-government 



SYSTEM OF NATURAL LIBERTY. 109 

and a repudiation of all social intervention for the regulation 
of economic life. (5.) He does not keep in view the moral 
destination of our race, nor regard wealth as a means to the 
higher ends of life, and thus incurs, not altogetlier unjustly, 
the charge of materialism, in the wider sense of that word. 
Lastly, (6.) his whole system is too absolute in its character; 
it does not sufficiently recognise the fact that, in the language 
of Hildebrand, man, as a member of society, is a child of 
civilisation and a product of history, and that account ought 
to be taken of the different stages of social development aa 
implying altered economic conditions and calling for altered 
economic action, or even involving a modification of the actor. 
Perhaps in all the respects here enumerated, certainly in some 
of them, and notably in the last, Smith is less open to criticism 
than most of the later English economists ; but it must, we 
think, be admitted that to the general principles which lie at 
the basis of his scheme the ultimate growth of these several 
vicious tendencies is traceable. 

Great expectations had been entertained respecting Smith's 
work by competent judges before its publication, as is shown 
by the language of Ferguson on the subject in his History of 
Civil Society} That its merits received prompt recognition 
is proved by the fact of six editions having been called for 
within the fifteen years after its appearance.^ From the year 

^ " The public will probably soon be furnished with a theory of national 
oeconom}^ equal to what has ever appeared on any subject of science 
whatever " (Parf-t III. sect. 4). 

^ Five editions of the Wealth of Nations appeared during the life of 
the author: — the second in 1779, the third in 1784, the fourth in 1786, 
and the fifth in 1789. After the third edition Smith made no chanj^^e in 
the text. The principal editions containing matter added by other 
economists are those by William Playfair, with notes, 1805 ; by David 
Buchanan, with notes, 1814 ; by J. R. M'Culloch, with life of the author, 
introductory discourse, notes, and supplemental dissertations, 1828 (also, 
with numerous additions, 1839 ; since reprinted several times with fur- 
ther additions) ; by the author of England and America (Edward Gibbon 
Wakefield), with a commentary, which, however, is not continued beyond 
the second book, 1835-9 ; by James E. Thorold Rogers, Professor of 



iio POLITICAL ECONOMY. 

1783 it was more and more quoted in Parliament. Pitt was 
greatly impressed by its reasonings : Smith is reported to have 
said that that Minister understood the book as well as himself. 
Pulteney said in 1797 that Smith would persuade the tteii 
living generation and would govern the next.^ 

Smith\s earliest critics were Bentham and Lauderdale, who, 
thougli in general agreement with him, differed on special 
points. Jeremy Bentbam was author of a short treatise en- 
titled A Manual of Political Economy and various eco- 
nomic monogrnplis, the most celebrated of which was his 
Defence of Usury (1787). This contained (Letter xiii.) au 
elaborate ciiticism of a passage in the Wealth of Nations^ 
already cited, in which Smith had ap[)roved of a legal maxi- 
mum rate of interest fixed but a very little above the lowest 
market rate, as tending to throw the capital of the country 
into the hands of sober persons, as opposed to " prodigals and 
projectors." Smith is said to have admitted that Bentham 
liad made out his case. He certainly argues it with great 
ability ; ^ and the true doctrine no doubt is that, in a developed 
industrial society, it is expedient to let the rate be fixed by 
contract between the lender and the borrower, the law inter- 
fering only in case of fraud. 

Bentham's main significance does not belong to the economic 
field. But, on the one hand, what is known as Benthamism 
was undoubtedly, as Comte has said,^ a derivative from poli- 
tical economy, and in particular from the system of natural 

political economy at Oxford, with biographical preface and a careful 
verification of all Smith's quotations and references, 1869 (2d ed., 1880) ; 
and by J. S. Nicholson, professor at Edinburgh, with notes referring to 
sources of further information on the various topics handled in the text, 
1884. There is a careful Abridgment by W. P, Emerton (2d ed.. 1881), 
founded on the earlier Analysis of Jeremiah Joyce (3d ed., 1821). 

^ Pari. Hist., vol. xxxiii. p. 778. 

^ It must be remembered, however, that the same doctrine had been 
supported with no less ability as early as 1769 by Turgot in bis Memoirs 
sur les prcts d' argent. 

^ Lettrcs d' A , Comte a J. S. Mill, p. 4. 



SYSTEM OF NATURAL LIBERTY. in 

liberty; and, on the other, it promoted the temporary ascen- 
dency of that system by extending to the whole of social and 
moral theory the use of the principle of individual interest 
and the method of deduction from that interest. This 
alliance between political economy and the scheme of Bentham 
is seen in the personal group of thinkers which formed itself 
round him, — thinkers most inaptly characterised by J. S. Mill 
as "profound," but certainly possessed of much acuteness and 
logical power, and tending, though vaguely, towards a positive 
sociology, which, from their want of genuinely scientific culture 
and their absolute modes of thought, they were incapable of 
foui^ding. 

Lr.rd Lauderdale, in his Inquiry into the Nature and Origin 
of Piihlic Wealth (1804), a book still worth reading, pointed 
out Ct-rtain real weaknesses in Smith's account of value and 
the m-aasure of value, and of the productivity of labour, and 
threw additional light on several subjects, such as the true 
mode of estimating the national income, and the reaction of 
the disr^ribution of wealth on its production. 

Smith stood just at the beginning of a great industrial 
revolution. The world of production and commerce in which 
he lived was still, as Cliffe Leslie has said, a 'S'ery early '^ 
and comparatively narrow one; "the only steam-engine he 
refers to is jS^ewcomen's," and the cotton trade is mentioned 
by him only once, and that incidentally. " Between the years 
1760 and 1770,'' says i^lr. ]\Larshall, "Koebuck began to smelt 
iron 'by coal, Brindley connected the rising seats of manufac- 
tures with the sea by canals, Wedgwood discovered the art of 
making earthenware cheaply and well, Hargreaves invented 
the spinning-jenny, Arkwright utilised Wyatt's and High's 
inventions for spinning by rollers and applied water-power to 
move them, and AVatt invented the condensing steam-engine. 
Crompton's mule and Cartwright's power-loom came shortly 
after." Out of this rapid evolution followed a vast expan- 
sion of industry, but also many deplorable results, which, had 
Smith been able to foresee them, miprht have made him a lesfi 



112 POLITICAL ECONOMY. 

enthusiastic believer in the benefits to be wrought by the 
mere liberation of effort, and a less vehement denouncer of 
old institutions Avhich in their day had given a partial pro- 
tection to labour. Alongside of these evils of the new indus- 
trial system, Socialism appeared as the alike inevitable and 
indispensable expression of the protest of the working classes 
and the aspiration after a better order of things ; and what we 
now call *' the social question," that inexorable problem of 
modern life, rose into the place which it has ever since main- 
tained. This question was first effectually brought before the 
English mind by Thomas Eobert Malthus (i 766-1834), not, 
however, under the impulse of revolutionary sympathies, but 
in the interests of a conservative policy. 

The first edition of the work which achieved this result 
appeared anonymously in 1798 under the title — An Essay 
on the Principle of Population^ as it affects the future im- 
provement of Society, with remarks on the speculations oj 
Mr, Godwin, M, Condorcet, and other writers. This book arose 
out of certain private controversies of its author with his 
father, Daniel Malthus, who had been a friend of Kousseau, 
and was an ardent believer in the doctrine of human progress 
as preached by Condorcet and other French thinkers and 
by their English disciples. The most distinguished of the 
latter was William Godwin, whose Enquiry concerning Political 
Justice had been published in 1793. The views put forward 
in that work had been restated by its author in the Enquirer 
(1797), and it was on the essay in this volume entitled 
*' Avarice and Profusion " that the discussion between the 
father and the son arose, '' the general question of the future 
improvement of society " being thus raised between them — 
the elder Malthus defending the doctrines of Godwin, and the 
younger assailing them. The latter '' sat down with an in- 
tention of merely stating his thoughts on paper in a clearer 
manner than he thought he could do in conversation/' and 
the Essay on population was the result. 

The social scheme of Godwin was founded on the idea tliat 



SYSTEM OF NATURAL LIBERTY. 113 

the evils of society arise from the vices of human institutions. 
There is more than enough of wealth available for all, but it 
is not equally shared : one has too much, another has little or 
nothing. Let this wealth, as well as the labour of producing 
it, be equally divided ; then every one will by moderate 
exertion obtain sufficient for plain living ; there will be abun- 
dant leisure, which will be spent in intellectual and moral 
self-improvement; reason will determine human actions; 
government and every kind of force will be unnecessary ; and, 
in time, by the peaceful influence of truth, perfection and 
happiness will be established on earth. To these glowing 
anticipations Malthus opposes the facts of the necessity of 
food and the tendency of mankind to increase up to the limit 
of the available supply of it. In a state of universal physical 
wellbeing, this tendency, which in real life is held in check 
by the difficulty of procuring a subsistence, would operate 
without restraint. Scarcity would follow the increase of num- 
bers ; tlie leisure would soon cease to exist ; the old struggle 
for life would recommence ; and inequality would reign once 
more. If Godwin's ideal system, therefore, could be estab- 
lished, the single force of the principle of population, Malthus 
maintained, would suffice to break it down. 

(It will be seen that the essay was written with a polemical 
object; it was an occasional pamphlet directed against the 
Utopias of the day, not at all a systematic treatise on popula- 
tion suggested by a purely scientific interest.) As a polemic, it 
was decidedly successful ; it was no difficult task to dispose 
of the scheme of equality propounded by Godwin. Already, 
in 1 76 1, Dr. Eobert Wallace had published a work (which 
was used by Malthus in the composition of his essay) entitled 
Various Prospects of Mankind, Mature, and Providence, in 
which, after speaking of a community of goods as a remedy 
for the ills of society, he confessed that he saw one fatal 
objection to such a social organisation, namely, " the excessive 
population that would ensue.'' With Condorcet's extrava- 
gances, too, Malthus easily dealt. That eminent man, amidst 

H 



114 POLITICAL ECONOMY. 

the tempest of the French Revolution, had written, whilst in 
hiding from his enemies, his Esjidsse cVun tableau historique 
de ['esprit liumain. The general conception of this book 
makes its appearance an epoch in the history of the rise of 
sociology. In it, if we except some partial sketches by Turgot,^ 
is for the first time explained the idea of a theory of social 
dynamics founded on history ; and its author is on this ground 
recognised by Comte as his principal immediate predecessor. 
But in the execution of his great project Condorcet failed. 
His negative metaphysics prevent his justly appreciating the 
past, and he indulges, at the close of his work, in vague 
hypotheses respecung the perfectibility of our race, and in 
irrational expectations of an indefinite extension of the dura- 
tion of human life. Malthus seems to have little sense of the 
nobleness of Condorcet's attitude, and no appreciation of the 
grandeur of his leading idea. But of his chimerical hopes he 
is able to make short work ; his good sense, if somewhat 
limited and prosaic, is at least efifectual in detecting and 
exposing Utopias. 

The project of a formal and detailed treatise on population 
was an after-thought of Malthus. The essay in which he had 
studied a hypothetic future led him to examine the eff'ects 
of the principle he had put forward on the past and present 
state of society; and he undertook an historical examination 
of these effects, and sought to draw such inferences in 
relation to the actual state of things as experience seemed to 
warrant. The consequence of this was such a change in the 
nature and composition of the essay as made it, in his own 
language, "a new work." The book, so altered, appeared in 
1803 under the title, An Essay on the Principle of Popu- 
lation^ or a Vieio of its Fast and Present Effects on Human 
Happiness ; loith an Enquir]/ into our prospects respecting the 
future removal or mitigation of the evils which it occasions, 

^ In his discourse at the Sorbonne (1750), Sur les progris successifs de 
Vesj^rit humain. 



SYSTEM OF NATURAL LIBERTY. 115 

In the original form of tlie essay lie had spoken of no 
cliecks to population but those ^vhich came under the head 
either of vice or of misery. He now introduces the new 
element of the preventive check supplied by what he calls 
" moral restraint," and is thus enabled to " soften- some of 
the liarshest conclusions " at which he had before arrived. 
The treatise passed through six editions ^ in his lifetime, and 
in all of them he introduced various additions and correc- 
tions. That of 1817 is the last he fully revised, and presents 
the text substantially as it has since been reprinted. 

Notwithstanding the great development which he gave to 
his work, and the almost unprecedented amount of discussion 
to which it gave rise, it remains a matter of some difficulty to 
discover what solid contribution he has made to our know- 
ledge, nor is it easy to ascertain precisely what practical 
precepts, not already familiar, he founded on his theoretic 
principles. This twofold vagueness is well brought out in 
his celebrated correspondence with Senior, in the course of 
which it seems to be made apparent that liis doctrine is new 
not so much in its essence as in the phraseology in which it is 
couched. He himself tells us that when, after the publication 
of the original essay, the main argument of which he had 
deduced from Hume, Wallace, Smith, and Price, he began to 
inquire more closely into the subject, he found that "much 
more had been done " upon it " than he had been aware of." 
It had "been treated in such a manner by some of the French 
economists, occasionally by Montesquieu, and, among our own 
writers, by Dr. Franklin, Sir James Steuart, Mr. Arthur Young, 
and Mr. Townsend, as to create a natural surprise that it 
had not excited more of the public attention." *' Much, 
however," he thought, " remained yet to be done. The 
comparison between the increase of population and food had 
not, perhaps, been stated wuth sufficient force and precision,'* 
and " few inquiries had been made into the various modes by 

^ Their dates are 1798, 1803, 1 806, 1 807, 181 7, 1 826, 



ii6 POLITICAL ECONOMY. 

M'liich the level " between population and the means of 
subsistence '* is effected.'' The first desideratum here men- 
tioned — the want, namely, of an accurate statement of the 
relation between the increase of population and food — Malthus 
doubtless supposed to have been supplied by the celebrated 
proposition that ^' population increases in a geometrical, food 
in an arithmetical ratio." This proposition, however, has been 
conclusively shown to be erroneous, there being no such dif- 
ference of law between the increase of man and that of the 
organic beings which form his food. J. S. Mill is indignant 
with those who criticise Malthus's formula, which, he ground- 
lessly describes as a mere *^ passing remark," because, as he 
thinks, though erroneous, it sufficiently suggests wdiat is true ; 
but it is surely important to detect unreal science, and to 
test strictly the foundations of beliefs. When the formula 
which we have cited is not used, other somewdiat nebulous 
expressions are frequently employed, as, for example, that 
" population has a tendency to increase faster than food," a 
sentence in which both are treated as if they were spontaneous 
growths, and which, on account of the ambiguity of the word 
^' tendency,'^ is admittedly consistent with the fact asserted 
by Senior, that food tends to increase faster than population. 
It must always have been perfectly well known that popula- 
tion will probably (though not necessarily) increase with every 
augmentation of the supply of subsistence, and may, in some 
instances, inconveniently press upon, or even for a certain time 
exceed, the number properly corresponding to that supply. 
Nor could it ever have been doubted that war, disease, poverty 
— the last two often the conse(|uences of vice — are causes 
which keep population down. In fact, the way in which 
abundance, increase of numbers, want, increase of deaths, 
succeed each other in the natural economy, when reason does 
not intervene, had been fully explained by the Eev. Joseph 
Townsend in his Dissertation on the Poor Laws (1786), 
which was known to Malthus. Again, it is surely plain 
enough that the apprehension by individuals of the evils of 



SYSTEM OF NATURAL LIBERTY. 117 

poverty, or a sense of duty to their possible offspring, may 
retard the increase of population, and has in all civilised 
communities operated to a certain extent in that way. It is 
only when such obvious truths are clothed in the technical 
terminology of '-positive'^ and '^ preventive checks" that 
they appear novel and profound ; and yet they appear to con- 
tain the whole message of Malthus to mankind. The labo- 
rious apparatus of historical and statistical facts respecting 
the several countries of the globe, adduced in the altered 
form of the essay, though it contains a good deal that is 
curious and interesting, establishes no general result which 
was not previously well known, and is accordingly ignored 
by James Mill and others, who rest the theory on facts patent 
to universal observation. Indeed, as we have seen, the entire 
historical inquiry was an after-thought of Malthus, who, 
before entering on it, had already announced his fundamental 
principle. 

/ It w^ould seem, then, that what has been ambitiously called 
Malthus's theory of population, instead of being a great dis- 
covery, as some have represented it, or a poisonous novelty, 
as others have considered it, is no more than a formal enun- 
ciation of obvious, though sometimes neglected, factsy The 
pretentious language often applied to it by economists is 
objectionable, as being apt to make us forget that the whole 
subject with which it deals is as yet very imperfectly under- 
stood — the causes which modify the force of the sexual 
instinct, and those which lead to variations in fecundity, still 
awaiting a complete investigation.^ 

It is the law of diminishing returns from land (of which 
more will be said hereafter), involving as it does — though 
cnly hvpothetically — the prospect of a continuously increasing 
difficulty in obtaining the necessary sustenance for all the 
members of a society, that gives the principal importance to 
population as an economic factor. It is, in fact, the conflu- 

* On this subject see the speculations of Mr. Herbert Spencer in hia 
Principles of Biology, Part VI. chaps, xii. xiii. 



iiS POLITICAL ECONOMY. 

dice of the Malthusian ideas witli tlie theories of Ricardo, 
especially with the corollaries which the latter, as we shall 
see, deduced from the doctrine of rent (though these were 
not accepted by Malthus), that has led to the introduction 
of population as an element in the discussion of so many 
economic questions in recent times. 

Malthus had undoubtedly the great merit of having called 
public attention in a striking and impressive way to a subject 
which had neither theoretically nor practically been sufficiently 
considered. But he and his followers appear to have greatly 
exaggerated both the magnitude and the urgency of the 
dangers to which they pointed.-^ In their conceptions a single 
social imperfection assumed such portentous dimensions that 
it seemed to overcloud the whole heaven and thn^aten the 
world with ruin. This doubtless arose from his having at 
first omitted altogether from his view of the question the 
great counteracting agency of moral restraint. Lecause a 
force exists, capable, if unchecked, of producing certain 
results, it does not follow that those results are imminent or 
even possible in the sphere of experience. A body tlirown 
from the hand would, under the single impulse of projection, 
move for ever in a straight line ; but it would not be reason- 
able to take special action for the prevention of this result, 
ignoring the fact that it will be sufficiently counteracted by 
the other forces which will come into play. And such other 
forces exist in the case we are considering. If the inherent 
energy of the principle of population (supposed everywhere 
the same) is measured by the rate at which numbers increase 
under the most favourable circumstances, surely the force uf 
less favourable circumstances, acting through prudential or 
altruistic motives, is measured by the great difference between 
this maximum rate and those which are observed to prevail in 
most European countries. Under a rational system of insti- 

1 Malthus himself said : — **It is probable that, having found the bow 
bent too much one way, I was induced to bend it too much the other in 
order to make it straight. " 



SYSTEM OF NATURAL LIBERTY. irg 

tutioiis, the adaptation of numbers to the means available for 
their support is effected by the felt or anticipatetl pressure 
of circumstances and the fear of social degradation, within a 
tolerable degree of approximation to what is desirable. Tc 
bring the result nearer to the just standard, a higher measure 
of popular enlightenment and more serious habits of moral 
reflection ought indeed to be encouraged. Eut it is the duty 
of the individual to his actual or pos>ible offspring, and not 
any vague notions as to the pressure of tlie national population 
on subsistence, that will be adequate to influence conduct. 

The only obligation on which Malthus insists is that of 
abstinence from marriage so long as the necessary provision 
for a family has not been acquired or cannot be reasonably 
anticipated. The idea of post-nuptial continence, which has 
since been put forward by J. S. Mill and others, is foreign to 
his view. He even sucjsfests that an allowance micrht be made 
from the public funds for every child in a family beyond the 
number of six, on the ground that, when a man marries, he 
cannot tell how many children he shall have, and that the 
relief from an unlooked-for distress afforded by such a grant 
would not operate as an encouragement to marriage. The 
duty of economic prudence in entering on the married state is 
plain ; but in the case of working men tlie idea of a secured 
provision must not be unduly pressed, and it inust also be 
remembered that the proper age for marriage in any class de- 
pends on the duration of life in that class. Too early mar- 
riages, however, are certainly not unfrequent, and they are 
attended with other than material evils, so that possibly even 
legal measures might with advantage be resorted to for pre- 
venting them in all ranks by somewhat postponing the age 
of full civil competence. On the other hand, however, tlie 
Malthusians often speak too lightly of involuntary celibacy, 
not recognising sufficiently that it is a deplorable necessity. 
They do not adequately estimate the value of domestic life as 
a school of the civic virtues, and the social importance (even 
apart from personal happiness) of the mutual affective educa« 



I20 POLITICAL ECONOMY. 

tion arising from the relations of the sexes in a well-constituted 
union. 

Malthus further infers from his principles that states should 
not artificially stimulate population, and in particular that 
poor-laws should not be established, and, where they exist, 
eUculd be abolished. The first part of this proposition cannot 
be accepted as applying to every social phase, for it is evident 
that in a case like that of ancient Rome, where continuous 
conquest was the chief occupation of the national activity, or 
in other periods when protracted wars threatened the inde- 
pendence or security of nations, statesmen might wisely take 
special action of the kind deprecated by Malthus. In relation 
to modern industrial communities he is doubtless in general 
right, though the promotion of immigration in new states is 
similar in principle to the encouragement of population. The 
question of poor-laws involves other considerations. The 
English system of his day was, indeed, a vicious one, though 
acting in some degree as a corrective of other evils in our 
social institutions ; and efi*orts for its amendment tended to the 
public good. But the proposal of abolition is one from which 
statesmen have recoiled, and which general opinion has never 
adopted. It is difficult to believe that the present system will 
be permanent ; it is too mechanical and undiscriminating ; on 
some sides too lax, it is often unduly rigorous in the treatment 
of the worthy poor who are the victims of misfortune ; and, 
in its ordinary modes of dealing with the young, it is open to 
grave objection. But it would certainly be rash to abolish it; 
it is one of several institutions which will more wisely be 
retained until the whole subject of the life of the working 
classes has been more thoroughly, and also more sympatheti- 
cally, studied. The position of Malthus with respect to the 
relief of destitution is subject to this general criticism, that, 
first proving too much, he then shrinks from the consequences 
of his own logic. It follows from his arguments, and is indeed 
explicitly stated in a celebrated pas^age of his original essay, 
that he who has brought children into the world without 



SYSTEM OF NATURAL LIBERTY. 121 

adequate provision for them should be left to the punishment 
of Nature, that *' it is a miserahle ambition to wish to snatch 
the rod from her hand," and to defeat the action of her laws, 
which are the laws of God, and which '* have doomed him 
and his family to suffer." Though his theory leads him to 
this conclusion, he could not, as a Christian clergyman, main- 
tain the doctrine that, seeing our brother in need, we ought 
to shut up our bowels of compassion from him ; and thus he 
is involved in the radical inconsequence of admitting the law- 
fulness, if not the duty, of relieving distress in cases where he 
yet must regard the act as doing mischief to society. Buckle, 
who was imposed on by more than one of the exaggerations 
of the economists, accepts the logical inference which Malthus 
evaded. He alleges that the only ground on which we are 
justified in relieving destitution is the essentially self-regard- 
ing one, that by remaining deaf to the appeal of the sufferer we 
should probably blunt the edge of our own finer sensibilities. 

It can scarcely be doubted that the favour which was at 
once accorded to the views of Malthus in certain circles was 
due in part to an impression, very welcome to the higher ranks 
of society, that they tended to relieve the rich and powerful 
of responsibility for the condition of the working classes, by 
showing that the latter had chiefly themselves to blame, and 
not either the negligence of their superiors or the institutions 
of the country. The application of his doctrines, too, made 
by some of his successors had the effect of discouraging all 
active effort for social improvement. Thus Chalmers " reviews 
seriatim and gravely sets aside all the schemes usually pro- 
posed for the amelioration of the economic condition of the 
people " on the ground that an increase of comfort will lead 
to an increase of numbers, and so the last state of things will 
be worse than the first. 

Malthus has in more recent times derived a certain degree 
of reflected lustre from the rise and wide acceptance of the 
Darwinian hypothesis. Its author himself, in tracing its 
filiation, points to the phrase "struggle for existence " used by 



122 POLITICAL ECONOMY. 

Maltbus in relation to the social competition. Darwin believes 
that man has advanced to his present high condition through 
such a strug^de, consequent on his rapid multiplication. He 
regards, it is true, the agency of this cause for the improve- 
ment of our race as largely superseded by moral influences in 
the more advanced social stages. Yet he considers it, even 
in these stages, of so much importance towards that end, 
that notwithstanding the individual suffering arising from 
the struggle for life, he deprecates any great reduction in 
the natural, by which he seems to mean the ordinar}", rate of 
increase. 

There has been of late exhibited in some quarters a ten- 
dency to ap})ly the doctrine of the "survival of the fittest" 
to human society in such a way as to intensify the harsher 
features of Maltlms's exposition by encouraging the idea that 
Avhatever cannot sustain itself is fated, and must be allowed, 
to disappear. But what is repellent in this conception is 
removed by a wider view of the influence of Humanity, as 
a disposing power, alike on vital and on social conditions. As 
in the general animal domain the supremacy of man introduces 
a new force consciously controlling and ultimately determining 
the destinies of the subordinate species, so human providence 
in the social sphere can intervene for the protection of the 
weak, modifying by its deliberate action what would otherwise 
be a mere contest of comparative strengths inspired by selfish 
instincts.^ 

David Eicardo (i 772-1823) is essentially of the school of 
Smith, whose doctrines he in the main acce})ts, whilst he 
seeks to develop them, and to correct them in certair. par- 



' The Ussay on B)pidation and the Inquiry into the Nature and Pro^ 
gressqf Kent (i8i5), to be hereafter mentioned, are by far the most im- 
portant contributions of Mai thus to the science. He wa- also author of 
Pnnciples of Political Economy (1820), Definitions in FoUHcal Fco7iomy 
(1827), and other minor pieces. On these less important writings of 
Malthus, and on his personal history, see Malthns and his Work (i885), 
by James Bonar, who has also edited (1888) Ricardo's Letters to Malthus. 



SYSTEM OF NATURAL LIBERTY. 123 

ticulars. But his mode of treatment is very different fiom 
Smith's. The latter aims at keeping close to the realities of 
life as he finds them, — at representing the conditions and 
relations of men and things as they are ; and, as Hume re- 
marked on first reading his great work, his principles are 
everywhere exemplified and illustrated with, curious facts. 
Quite unlike this is the way in which Ricardo proceeds. He_ 
moves in a world of abstractions. CKe sets out from more or 
less arbitrary assumptions, reasons deductively from these, and 
announces his conclusions as true, without allowing for the 
partial unreality of the conditions assumed or confronting 
his results with experience.} When he seeks to illustrate his 
doctrines, it is from hypothetical cases, — his favourite device 
being that of imagining two contracting savages, and consider- 
ing how they would be likely to act. He does not explain — 
probably he had not systematically examined, perhaps was 
not competent to examine — the appropriate method of poli- 
tical economy; and the theoretic defence of his mode of 
proceeding was left to be elaborated by J. S. Mill and Cairnes. 
But his example had a great effect in determining the practice 
of his successors. There was something highly attractive to 
the ambitious theorist in the sweeping march of logic which 
seemed in Eicardo's hands to emulate the certainty and com- 
prehensiveness of mathematical proof, and in the portable and 
pregnant formulae which were so convenient in argument, and 
gave a prompt, if often a more apparent than real, solution of 
difficult problems. Whatever thei'e was of false or narrow 
in the fundamental positions of Smith had been in a great 
degree corrected by his practical sense and strong instinct for 
reality, but was brought out in its full dimensions and even 
exaggerated in the abstract theorems of Eicardo and his 
followers. 

The dangers inherent in his method were aggravated by the 
extreme looseness of his phraseology. Senior pronounces him 
**the most incorrect writer who ever attained philosophical 
eminence." His most ardent admirers find him fluctuating? 



124 POLITICAL ECONOMY. 

and uncertain in tlie use of words, and generally trace hia 
errors to a confusion between the ordinary employment of a 
term and some special application of it which he has himself 
devised. 

The most complete exposition of his system is to be found 
in his Principles of PoUttcal Economy and Taxation (1817). 
This work is not a complete treatise on the science, but a 
rather loosely connected series of disquisitions on value and 
price, rent, wages and profits, taxes, trade, money and banking. 
Yet, though the connection of the parts is loose, the same 
fundamental ideas recur continually, and determine the 
character of the entire scheme. 

The principal problem to which lie addresses himself in this 
work is that of distribution^ — that is to say, the proportions 
of the whole produce of the country which will be allotted to 
the proprietor of land, to the capitalist, and to the labourer. 
And it is important to observe that it is especially the varia- 
tions in their respective portions which take place in the pro- 
gress of society that he professes to study, — one of the most 
unhistorical of writers thus indicating a sense of the necessity 
of a doctrine of economic dynamics — a doctrine which, from 
his point of view, it was impossible to suppl}'. 

The principle which he puts first in order, and which is 
indeed the key to the whole, is this — that the exchange value 
of any commodity the supply of which can be increased at will 
is regulated, under a regime of free competition, by the labour 
necessary for its production. Similar propositions are to be 
found in the Wealth of Nations, not to speak of earlier English 
writings. Smith had said that, "in the early and rude state 
of society which precedes both the accumulation of stock and 
the appropriation of land, the proportion between the quan^ 
titles of labour necessary for acquiring different objects seems 
to be the only circumstance which can afford any rule for ex- 
changing them with one another." 'But he wavers in his con- 
ception, and presents as the measure of value sometimes the 
quantity of labour necessary for the production of the object, 



SYSTEM OF NATURAL LIBERTY. 125 

Bometimes the quantity of labour which the object would com- 
nmnd in the market, which would be identical only for a given 
time and place.) The theorem requires correction for a deve- 
loped social system by the introduction of the consideration 
of capital, and takes the form in which it is elsewhere quoted 
from Malthus by Eicardo, that the real price of a commodity 
*' depends on the greater or less quantity of capital and labour 
which must be employed to produce it." (The expression 
** quantity of capital " is lax, the element of time being omitted, 
but the meaning is obvious.) Eicardo, however, constantly 
takes no notice of capital, mentioning labour alone in his state- 
ment of this principle, and seeks to justify his practice by 
treating capital as *^ accumulated labour;" but this artificial 
way of viewing the facts obscures the nature of the co-opera- 
tion of capital in production, and by keeping the necessity of 
this co-operation out of sight has encouraged some socialistic 
errors. Eicardo does not sufficiently distinguish between the 
canse or determinant and the measure of value ; nor does lie 
carry back the principle of cost of production as regulator of 
value to its foundation in the effect of that cost on the limita- 
tion of supply. It is the " natural price '^ of a commodity that 
is fixed by the theorem we have stated ; the market price will 
be subject to accidental and temporary variations from this 
standard, depending on changes in demand and supply ; but 
the price will, permanently and in the long run, depend on 
cost of production defined as above. On this basis Eicardo 
goes on to explain the laws according to which the produce of 
the land and the labour of the country is distributed amongst 
the several classes which take part in production. 
(^The theory of rent, with which he begins, though commonly 
associated with his name, and though it certainly forms the 
most vital part of his general economic scheme, was not really 
his, nor did he lay claim to it. He distinctly states in the 
preface to the Principles, that "in iSi'S Mr Malthus, in his 
Inquiry into the Nature and Progress of Rent^ and a fellow of 
University College, Oxford, in his Essay on the Aiiplication of 



126 POLITICAL ECONOMY. 

Capital to Larid, presented to the world, nearly at tlie same 
moment, the true doctrine of rent." The second writer here 
referred to was Sir Edward West, afterwards a judge of the 
supreme court of Bombay. ( Still earlier than the time of 
Malthus and West, as M'Culloch has pointed out, this doctrine 
had been clearly conceived and fully stated by Dr. James 
Anderson in his Enquiry into the Nature of Corn-Laws, pub- 
lished at Edinburgh in iJTJ^^ That this tract was unknown 
to Malthus and West we have every reason to believe ; but 
the theory is certainly as distinctly enunciated and as satis- 
factorily supported in it as in their treatises ; and the whole 
way in which it is put forward by Anderson strikingly re- 
sembles the form in which it is presented by Eicardo. 

The essence of the theory is that rent, being the price paid 
by the cultivator to the owner of land for the use of its 
productive powers, is equal to the excess of the price of the 
produce of the land over the cost of production on that land. 
With the increase of population, and therefore of demand for 
food, inferior soils will be taken into cultivation ; and the 
price of the entire supply necessary for the community will be 
regulated by the cost of production of that portion of the 
supply which is produced at the greatest expense. But for 
the land which will barely repay the cost of cultivation no 
rent will be paid. Hence the rent of any quality of land will 
be equal to the difference between the cost of production on 
that land and the cost of production of that produce which is 
raised at the greatest expense. 

The doctrine is perhaps most easily apprehended by means 
of the supposition here made of the coexistence in a country 
of a series of soils of different degrees of fertility which are 
successively taken into cultivation as population increases. 
But it would be an error to believe, though Ricardo some- 
times seems to imply it, that such difference is a necessary 

^ Anderson's account of the origin of rent is reprinted in the Select 
Collection of Scarce and Valuable Economical TractSy edited £or Lord 
Overstone by J. R. M'Culloch, 1859. 



SYSTEM OF NATURAL LIBERTY. 127 

condition of the existence of rent. If all the land of a 
country were of equal fertility, still if it were appropriated, 
and if the price of the produce were more than an equivalent 
for the lahour and capital applied to its production, rent would 
be paid. This imaginary case, liowever, after using it to clear 
our conceptions, we may for the future leave out of account. 

The price of produce being, as we have said, regulated by 
the cost of production of that which pays no rent, it is evident 
that "corn is not high because a rent is paid, but a rent is 
paid because corn is high," and that ** no reduction would take 
place in the price of corn although landlords should forego the 
whole of their rent." Eent is, in fact, no determining element 
of price ; it is paid, indeed, out of the price, but the price 
would be the same if no rent were paid, and the whole price 
were retained by the cultivator. 

It has often been doubted whether or not Adam Smith 
held this theory of rent. Sometimes he uses language which 
seems to imply it, and states propositions which, if developed, 
would infallibly lead to it. Thus he says, in a passage 
already quoted, '• Such parts only of the produce of laml can 
commonly be brought to market of which the ordinary price 
is sufficient to replace the stock which must be employed in 
bringing them thither, together with its ordinary profits. If 
the ordinary price is more than this, the surplus part of it 
will naturally go to the rent of land. If it is not more, though 
the commodity can be brought to market, it can afford no rent 
to the landlord. Whether the price is or is not more depends 
on the demand." Again, in Smith's application of these con- 
siderations to mines, *' the whole principle of rent," Eicardo 
tells us, "is admirably and perspicuously explained." But he 
had formed the opinion that there is in fact no land which 
does not afford a rent to the landlord ; and, strangely, he 
seems not to have seen that this appearance might arise from 
the aggregation into an economic whole of parcels of land 
which can and others which cannot pay rent The truth, 
indeed, is, that the fact, if it were a fact, that all the land 



128 POLITICAL ECONOMY. 

in a country pays rent would be irrelevant as an argument 
against the Andersonian theory, for it is the same thing in 
substance if there be any capital employed on land ah^eady 
cultivated which yields a return no more than equal to ordi- 
nary profits. Such last-employed capital cannot afford rent 
at the existing rate of profit, unless the price of produce 
should rise. 

The belief which some have entertained that Smith, notwith- 
standing some vague or inaccurate expressions, really held the 
Andersonian doctrine, can scarcely be maintained when we 
remember that Hume, writing to him after having read for 
the first time the Wealth of Nations, whilst expressing general 
agreement with his opinions, said (apparently with reference 
to Bk. I. chap, vii.), **I cannot think that the rent of farms 
makes any part of the price of the produce, but that the price 
is determined altogether by the quantity and the demand.'' 
It is further noteworthy that a statement of the theory of 
rent is given in the same volume, published in 1777, which 
contains Anderson's polemic against Smith's objections to a 
bounty on the exportation of corn ; this volume can hardly 
have escaped Smith's notice, yet neither by its contents nor 
by Hume's letter was he led to modify what he had said in 
his first edition on the subject of rent. 

It must be remembered that not merely the unequal fertilities 
of different soils will determine difi^erences of rent ; the more 
or less advantageous situation of a farm in relation to markets, 
and therefore to roads and railways, will have a similar effect. 
Comparative lowness of the cost of transit will enable the pro- 
duce to be brought to market at a smaller expense, and will 
thus increase the surplus which constitutes rent. This con- 
sideration is indicated by Eicardo, though he does not give it 
prominence, but dAvells mainly on the comparative produc- 
tiveness of soils. 

Eent is defined by Eicardo as the price paid for the use of 
"the original and indestructible powers of the soil." He thus 
differentiates rent, as he uses the term, from what is popularly 



SYSTEM OF NATURAL LIBERTY. 129 

designated by the word; and, when it is to be taken in his 
sense, it is often qualified as the ^'true" or "economic" rent. 
Part of what is paid to the landlord is often really profit on 
his expenditure in preparing the farm for cultivation by the 
tenant. Eat it is to be borne in mind that wherever such 
improvements are " amalgamated with the land," and " add 
permanently to its productive powers," the return for them 
follows the laws, not of profit, but of rent. Hence it becomes 
difficult, if not impossible, in practice to discriminate with 
any degree of accuracy the amount received by the landlord 
" for the use of the original powers of the soil " from the 
amount received by him as remuneration for his improve- 
ments or those made by his predecessors. These have raised 
the farm, as an instrument for producing food, from one class 
of productiveness to a higher, and the case is the same as 
if nature had originally placed the land in question in that 
higher class. 

Smith had treated it as the peculiar privilege of agriculture, 
as compared with other forms of production, that in it "nature 
labours along with man," and therefore, whilst the workmen 
in manufactures occasion the reproduction merely of the capital 
which employs them with its owner's profits, the agricultural 
labourer occasions the reproduction, not only of the employei-'s 
capital with profits, but also of the rent of the landlord. This 
last he viewed as the free gift of nature which remained " after 
deducting or compensating everything wdiich can be regarded 
as the work of man." Ricardo justly observes in reply that 
** there is not a manufacture which can be mentioned in which 
nature does not give her assistance to man." He then goes 
on to quote from Buchanan the remark that '^ the notion of 
agriculture yielding a produce and a rent in consequence, 
because nature concurs with industry in the process of culti- 
vation, is a mere fancy. It is not from the produce, but from 
the price at which the produce is sold, that the rent is derived ; 
and this price is got, not because nature assists in the pro- 
duction, but because it is the price which suits the consump- 



130 POLITICAL ECONOMY. 

tion to the supph\"^ Tliere is no gain to tlie society at large 
from the rise of rent; it is advantageous to the landlords 
alone, and their interests are thus permanently in opposition 
to those of all other classes. The rise of rent may be retarded, 
or prevented, or even temporarily changed to a fall, by agricul- 
tural improvements, such as the introduction of new manures 
or of machines or of a better organisation of labour (though 
there is not so much room for this last as in other branches 
of production), or the opening of new sources of supply in 
foreign countries ; but the tendency to a rise is constant so 
long as the population increases. 

The great importance of the theory of rent in Eicardo's 
system arises from the fact that he makes the general eco- 
nomic condition of the society to depend altogether on tlie 
position in Avhich agricultural ex})loitation stands. This will 
be seen from the following statement of his theory of wages 
and profits. The produce of every expenditure of labour and 
capital being divided between the labourer and the capitalist, 
in proportion as one obtains more the other will neces- 
sarily obtain less. The productiveness of labour being given, 
nothing can diminish profit but a rise of wages, or increase 
it but a fall of wages. IS'ow the price of labour, being the 
same as its cost of production, is determined by the price of 
the commodities necessary for thx3 support of the labourer. 
The price of such manufactured articles as he requires has a 
constant tendency to fall, principally by reason of the pro- 
gressive application of the division of labour to their produc- 
tion. But the cost of his maintenance essentially depends, 
not on the price of those articles, but on that of his food ; 
and, as the production of food will in the progress of society 

^ Senior, however, has pointed out that Smith is partly right ; whilst 
it is true that rent is demanded because the productive powers of nature 
are limited, and increased population requires a less remunerative ex- 
penditure in order to obtain the necessary supply ; on the other hand, 
it is the power which most land possesses of producing the subsistence 
of more persons than are required for its cultivation that supplies the 
fund out of which rent can be paid. 



SYSTEM OF NATURAL LIBERTY. 131 

and of population require the sacrifice of more and more 
labour, its price ^yili rise ; money wages Avill consequently 
ris(i, and with the rise of wages profits will fall. Thus it is 
to the necessary gradual descent to inferior soils, or less pro- 
ductive expenditure on the same soil, that the decrease in 
the rate of profit which has historically taken place is to be 
attributed (Smith ascribed tliis decrease to the competition of 
capitalists, though in one place^ Book I. chap, ix.,^ he had 
a glimpse of the Eicardian view). This gravitation of profits 
towards a minimum is happily checked at times by improve- 
ments of the machinery employed in the production of neces- 
saries, and especially by such discoveries in agriculture and 
other causes as reduce the cost of the prime necessary of the 
labourer; but here again the tendency is constant. Whilst 
the capitalist thus loses, the labourer does not gain ; his 
increased money wages only enable him to pay the increased 
price of his necessaries, of which he will have no greater 
and probably a less share than he had before. In fact, the 
labourer can never for any considerable time earn more than 
what is required to enable t'le class to subsist in such a 
degree of comfort as custom ha$^ made indispensable to them, 
and to perpetuate their race without either increase or dimi- 
nution. That is the " natural " price of labour ; and if 
the market rate temporarily rises above it population will 
be stimulated, and the rate of wages will again fall. -('Thus 
whilst rent has a constant tendency to rise and profit to fall, 
the rise or fall of wages will depend on the rate of increase 
of the working classes^ For the improvement of their con- 
dition Eicardo thus has to fall back on the Malthnsian remedy, 
of the efi'ective application of which he does not, however, 
seem to have much expectation. The securities against a 

^ "Ab the colony increases, the profits of stock gradually diminish. 
When the most fertile and best situated lands have been all occupied, 
less [irofit can be made by the cultivation of what is inferior both in soil 
and situation, and less interest can be afforded for the stock which is ao 
employed." The view in question had been anticipated by West. 



132 POLITICAL ECONOMY. 

superabundant population to which he points are the gradual 
abolition of the poor-laws — for their amendment would not 
content him — and the development amongst the working 
classes of a taste for greater comforts and enjoyments. 

It will be seen tliat the socialists have somewhat exac^ge- 
rated in announcing, as Eicardo's *' iron law " of wages, theif 
absolute identity with the amount necessary to sustain the 
existence of the labourer and enable him to continue the race. 
He recognises the influence of a "standard of living" as limit- 
ing the increa-e of the numbers of the working classes, and 
so keeping their wages above the lowest point. But he also 
holds that, in long-settled countries, in the ordinary course of 
human affairs, and in the absence of special efforts restricting 
the growth of population, the condition of the labourer will 
decline as surely, and from the same causes, as that of the 
landlord will be improved? 

If we are asked whether this doctrine of rent, and the con- 
sequences which Ricardo deduced from it, are true, we must 
answer that they are hypothetically true in the most advanced 
industrial communities, and there only (though they have 
been rashly applied to the cases of India and Ireland), but 
that even in those communities neither safe inference nor 
sound action can be built upon them. As we shall see here- 
after, the value of most of the theorems of the classical eco- 
nomics is a good deal attenuated by the habitual assumptions 
that we are dealing with " economic men," actuated by one 
principle only ; that custom, as against competition, has no 
existence ; that there is no such thing as combination ; that 
there is equality of contract between the parties to each trans- 
action, and that there is a definite universal rate of profit and 
wages in a community ; this last postulate implying (i) that 
the capital embarked in any undertaking will pass at once to 
another in which larger profits are for the time to be made ; 
(2) that a labourer, whatever his local ties of feeling, famil}^, 
habit, or other engagements, will transfer himself immediately 
to any place where, or employment in which, for the time, 



SYSTEM OF NATURAL LIBERTY. 133 

larger Avages are to be earned than those he had previously 
obtained ; ^ and (3) that both capitalists and labourers have 
a perfect knowledge of the condition and prospects of industry 
throughout the country, both in their own and other occupa- 
tions.) But in Ricardo's speculations on rent and its conse- 
quences there is still more of abstraction. ' The influence of 
emigration, which has assumed vast dimensions since his time, 
is left out of account, and the amount of land at the disposal 
of a community is supposed limited to its own territory, whilst 
contemporary Europe is in fact largely fed by the western 
States of America. He did not adequately appreciate the 
degree in which the augmented productiveness of labour, 
whether from increased intelligence, improved organisation, 
introduction of machinery, or more rapid and cheaper com- 
munication, steadily keeps down the cost of production. To 
these influences must be added those of legal reforms in 
tenure, and fairer conditions in contracts, which operate in 
the same direction. As a result of all these causes, the pres- 
sure anticipated by Eicardo is not felt, and the cry is of the 
landlords over falling rents, not of the consumer over rising 
prices. The entire conditions are in fact so altered that 
Professor Nicholson, no enemy to the ''orthodox" economics, 
when recently conducting an inquiry into the present state of 
the agricultural question,'^ pronounced the so-called Ricardian 
theory of rent "too abstract to be of practical utility.") 

A particular economic subject on which Ricardo has thrown 
a useful light is the nature of the advantages derived from 
foreign commerce, and the conditions under which such com- 
merce can go on. Whilst preceding writers had represented 
those benefits as consisting in affording a vent for surplus 
produce, or enabling a portion of the national capital to re- 
place itself with a profit, he pointed out that they consist 

^ Adam Smith says : — "It appears evidently from experience that man 
is, of all sorts of luggage, the most difficult to be transported " ( Wealth 
of Nations, Bk. I. chap. viii. ). 

2 Tenant's Gain not Landlord's Loss (1S83), p. S^- 



134 POLITICAL ECONOMY. 

" simply and solely in this, that it enables each nation to 
obtain, ^vith a given amount of labour and capital, a greater 
quantity of all commodities taken together." This is no doubt 
the point of view at which we should habitually place our- 
selves ; though the other forms of expression employed by his 
predecessors, includmg Adam Smith, are sometimes useful as 
representing real considerations affecting national production, 
and need not be absolutely disused. Eicardo proceeds to 
show that what determines the purchase of any commodity 
from a foreign country is not the circumstance that it can be 
produced there with less labour and capital than at home. 
If we have a greater positive advantage in the production of 
some other article tlian in that of the commodity in question, 
even though we have an advantage in producing the latter, 
it may be our interest to devote ourselves to the })roduction 
of that in which we have the greatest advantage, and to im- 
port that in producing which we should have a less, though a 
real, advantage. It is, in short, not absolute cost of produc- 
tion, but comparative cost, which determines the interchange.^ 
This remark is just and interesting, though an undue import- 
ance seems to be attributed to it by J. S. ]\lill and Cairnes, 
the latter of whom magniloquently describes it as " sounding 
the depths " of the problem of international dealings, — though, 
as we shall see hereafter, he modifies it by the introduction 
of certain considerations respecting the conditions of domestic 
production. 

For the nation as a whole, according to Eicardo, it is not 
the gross produce of the land and labour, as Smith seems to 
assert, that is of importance, but the net income — the excess, 
that is, of this produce over the cost of production, or, in 
other words, the amount of its rent and its profits ; for the 
wages of labour, not essentially exceeding the maintenance 
of the labourers, are by him considered only as a part of the 
" necessary expenses of production." Hence it follows, as he 
himself in a characteristic and often quoted passage says, that, 
" provided the net real ii^copie gf tlie niation be the same, it 



SYSTEM OF NATURAL LIBERTY. 135 

is of no importance whether it consists of ten or twelve 
millions of inhabitants. If five millions of men coulJ pro- 
duce as much food and clothing as was necessary for ten 
millions, food and clothing for five millions would be the net 
revenue. Would it be of any advantage to the country that to 
produce this same net revenue seven millions of men should 
be required,— that is to say, that seven millions should be 
employed to produce food and clothing sufficient for twelve 
millions? The food and clothing of five millions would be 
still the net revenue. The employing a greater number of 
men would enable us neither to add a man to our army and 
navy nor to contribute one guinea more in taxes." Industry 
is here viewed, just as by the mercantilists, in relation to the 
military and political power of the state, not to the maintenance 
and improvement of liuman beings, as its end and aim. The 
labourer, as Held lias remarked, is regarded not as a member 
of society, but as a means to the ends of society, on whose 
sustenance a part of the gross income must be expended, as 
another part must be spent on the sustenance of horses.": We 
may well ask, as Sismondi did in a personal interview with 
Eicardo, ''What! is wealth then everything? are men abso- 
lutely nothing 1 " 

On the whole what seems to us true of Eicardo is this, that, 
Avhilst he had remarkable powers, they were not the powers 
best fitted for sociological research. Xature intended him 
rather for a mathematician of the second order than for a 
social philosopher. Nor had he the due previous preparation 
for social studies ; for we must decline to accept Bagehot's 
idea that, though " in no high sense an educated man," he 
had a specially apt training for such studies in his practice as 
an eminently successful dealer in stocks. The same writer 
justly notices the *' anxious penetration with which he follows 
out rarefied minutiae." (But he"^ wanted breadth of survey, a 
comprehensive view of human nature and human life, and 
the strong social sympathies which, as the greatest minds have 
recognised, are a most valuable aid in this department of study. ■ 



136 POLITICAL ECONOMY. 

On a subject like that of money, where a few elementary pro* 
positions — into wliich no moral ingredient enters — ^have alone 
to be kept in view, he was well adapted to succeed ; but in 
the larger social field he is at fault. lie had great deductive 
readiness and skill (though his logical accuracy, as Mr. Sidg- 
wick remarks, has been a good deal exaggerated). But in 
human affairs phenomena are so complex, and principles so 
constantly limit or even compensate one another, that rapidity 
and daring iu deduction may be the greatest of dangers, if 
they are divorced from a wide and balanced appreciation of 
facts. Dialectic ability is, no doubt, a valuable gift, but the 
first condition for success in social investigation is to see 
things as they are. 

A sort of Ei card o-my thus for some time existed in eco- 
nomic circles. It cannot be doubted that the exaggerated 
estimate of his merits arose in part from a sense of the support 
his system gave to the manufacturers and other capitalists in 
their growing antagonism to the old aristocracy of landowners. 
The same tendency, as well as his affinity to their too abstract 
and unhistorical modes of thought, and their eudaemonistic 
doctrines, recommended him to the Benthamite group, and 
to the so-called Philosophical Radicals generally. Brougham 
said he seemed to have dropped from the skies — a singular 
avatar, it must be owned. His real services in connection 
with questions of currency and banking naturally created a 
prepossession in favour of his more general views. But, 
apart from those special subjects, it does not appear that, 
either in the form of solid theoretic teaching or of valuable 
practical guidance, he has really done much for the world, 
whilst he admittedly misled opinion on several important 
questions. De Quincey's piesentation of him as a great 
revealer of truth is now seen to be an extravagance. J. S. 
Mill and others speak of his "su})erior lights " as compared 
with those of Adam Smith ; but his work, as a contribution 
to our knowledge of human society, will not bear a moment't 
comparison with the Wealth of Nations. 



SYSTEM OF NATURAL LIBERTY. 137 

It is interesting to observe that Maltlius, though the com- 
bination of his doctrine of population with the principles of 
Ricardo composed the creed for some time professed by all the 
** orthodox " economists, did not himself accept the Ricardian 
scheme. He prophesied that "the main part of the structure 
would not stand." *' The theory," he says, " takes a partial 
view of the subject, like the system of the French economists ; 
and, like that system, after having drawn into its vortex a 
great number of very clever men, it wull be unable to support 
itself against the testimony of obvious facts, and the weight 
of those theories which, though less simple and captivating, 
are more just, on account of their embracing more of the causes 
which are in actual operation in all economical results." 

We saw that the foundations of Smith's doctrine in general 
philosophy were unsound, and the ethical character of his 
scheme in consequence injuriously affected ; but his method, 
consisting in a judicious combination of induction and deduc- 
tion, we found (so far as the statical study of economic laws 
is concerned) little open to objection. r'Mainly through the 
influence of Ricardo, economic method was perverted. The 
science was led into the mistaken course of turning its back 
oil observation, and seeking to evolve the laws of phenomena 
out of a few hasty generalisations by a play of logic. The V 
principal vices which have been in recent times not unjustly 
attributed to the members of the " orthodox " school were all 
encouraged by his example, namely, — (i) the viciously abstract 
character of the conceptions with which they deal, (2) the 
abusive preponderance of deduction in their processes of re- 
search, and (3) the too absolute way in which their conclu- 
sions are conceived and enunciated. 

The works of Ricardo have been collected in one volume, 
with a biographical notice, by J. R. ]\l'Culloch (1846).! 

^ A sketch of Ricardo*s personal history, and an account of his writ- 
ings on monetary questions, which could not conveniently be introduced 
here, will be found under his name in the Bncyclopcedia Britannica, 9th 
edition. 



138 POLITICAL ECONOMY. 

After Malthus and Eicardo, the first of whom had fixed 
public attention irresistibly on certain aspects of society, and 
the second had led economic research into new, if questionable, 
paths, came a number of minor writers who were mainly their 
expositors and commentators, and whom, accordingly, the 
Germans, witli allusion to Greek mythical history, designate 
as the Epigoni. By them the doctrines of Smith and his 
earliest successors were thrown into more systematic shape, 
limited and guarded so as to be less open to criticism, couched 
in a more accurate terminology, modified in subordinate par- 
ticulars, or applied to the solution of the practical questions 
of their day. 

James Mill's Elements (182 1) deserves special notice, as 
exhibiting the system of Ricardo with thorough-going rigour, 
and with a compactness of presentation, and a skill in the 
disposition of materials, which give to it in some degree the 
character of a work of art. The a priori political economy 
is here reduced to its simplest expression. J. E. M'Culloch 
(i 779-1864), author of a number of laborious statistical and 
other compilations, criticised current economic legislation in 
the Edinhiirgh Revleio from the point of view of the Eicardian 
doctrine, taking up substantially the same theoretic position 
as was occupied at a somewhat later period by the Manchester 
school. He is altogether without originality, ai?d never 
exhibits any philosophic elevation or breadth. His confident 
dogmatism is often repellent ; he admitted in his latet' years 
that he had been too fond of novel opinions, and defended 
them with more lieat and pertinacity than they deserved. It 
is noticeable that, though often spoken of in his own time 
both by those who agreed with his views, and those, like 
Sismondi, who differed from them, as one of the lights of 
the reigning school, his name is now tacitly dropped in the 
writings of the members of that school. Whatever may have 
been his partial usefulness in vindicating the policy of free 
trade, it is at least plain that for the needs of our social future 
he has nothing to offer. Nassau William Senior (1790-1864), 



SYSTEM OF NATURAL LIBERTY. 139 

^vho was professor of political economy in the university of 
Oxford, published, besides a number of separate lectures, a 
treatise on the science, which first appeared as an article in 
the Enciicloj)oedia Meiroiiolitana. He is a writer of a high 
order of merit. He made considerable contributions to tlie 
elucidation of economic principles, specially studying exact- 
ness in nomenclature and strict accuracy in deduction. His 
explanations on cost of 23roduction and the way in which it 
affects price, on rent, on the difference between rate of wages 
and price of labour, on the relation between profit and wages 
(with special reference to Eicardo's theorem on this subject, 
which he corrects by the substitution of proportional for 
absolute amount), and on the distribution of the precious 
metals between different countries, are particularly valuable. 
His new term " abstinence," invented to express the conduct 
for which interest is the remuneration, was useful, tliough 
not quite appropriate, because negative in meaning. It is on 
the theory of wages that Senior is least satisfactory. He 
makes the average rate in a country (which, we must main- 
tain, is not a real quantity, though the rate in a given employ- 
ment and neighbourhood is) to be expressed by the fraction 
of which the numerator is the amount of the w^ages fund (an 
unascertainable and indeed, except as actual total of wages 
paid, imaginary sum) and the denominator the number of the 
working population ; and from this he proceeds to draw the 
most important and far-reaching consequences, though the 
equation on which he founds his inferences conveys at most 
only an arithmetical fact, which would be true of every case 
of a division amongst individuals, and contains no economic 
element whatever. The phrase ^' wages fund" originated in 
some expressions of Adam Smith ^ used only for the purpose 
of illustration, and never intended to be rigorously interpreted; 

^ Thus, in Wealth of Nations, Bk. L chap, viii., we have the phrases — 
*'the funds which are destined to the payment of wages," "the fund* 
deiitined for employing industry," "the funds destined for the mainte- 
nance of servants." 



140 POLITICAL ECONOMY. 

aDii we shall see that the doctrine has been repudiated by 
several members of what is regarded as the orthodox scluul 
of political economy. As regards method, Senior makes the 
science a purely deductive one, in which there is no room 
for any other "facts" than tlie four fundamental propositions 
from which he undertakes to deduce all economic truth. And 
he does not regard himself as arriving at hypothetic conclu- 
sions ; his postulates and his inferences are alike conceived as 
corresponding to actual phenomena.^ Colonel Eobert Torrens 
(i 780-1 864) was a prolific writer, partly on economic theory, 
but principally on its applications to financial and commercial 
policy. Almost the whole of the programme which was 
carried out in legislation by Sir Eobert Peel had been laid 
down in principle in the writings of Torrens. He gave sub- 
stantially the same theory of foreign trade which was after- 
wards stated by J. S. Mill in one of his Essays on Unsettled 
Questions,^ He was an early and earnest advocate of the 
repeal of the corn laws, but was not in favour of a general 
system of absolute free trade, maintaining that it is expedient 
to impose retaliatory duties to countervail similar duties im- 
posed by foreign countries, and that a lowering of import 
duties on the productions of countries retaining their hostile 
tariffs Avould occasion an abstraction of the precious metals, 
and a decline in prices, profits, and wages. His principal 
writings of a general character were — IVie Economist [i.e., 
Physiocrat] Refuted, 1808; Essay on the Production of 
Wealth, 1821 ; Essay on the External Corn-trade (eulogised by 
Eicardo), 3d ed., 1826 ; lite Budget, a Series of Letters on 
Financial, Commercial, and Colonial Policy, 184 1-3. Harriet 
Martineau (1802-1876) popularised the doctrines of Malthus 
and Eicardo in her Illustrations of Political Economy (1832— 

1 See the last of his Four Introductory Lectures on Political Economy^ 
1852. 

2 Mill, however, tells us in his Preface to those Essays that his own 
views on that subject had been entertained and committed to writing 
before the publication by Torrens of similar opinions. 



SYSTEM OF NATURAL LIBERTY. 141 

34), a series of tales, in which there is much excellent descrip- 
tion, but the effect of the narrative is often marred by the 
somewhat ponderous disquisitions here and there thrown in, 
usually in the form of dialogue. 

Other writers who ouglit to be nam.ed in any history of the 
science are Charles Babbage, On the Economy of Machinery 
and Manufactures (1832), chiefly descriptive, but also in part 
theoretic ; William Thomas Tliornton, Oveoyopulation and its 
Remedy (1846), A Plea for Peasant Proprietors (1848), On 
Labour (1869; 2d ed., 1870); Herman Merivale, Lectures on 
Colonisation and Colonies (i 841-2; new ed., 186 1); T. C. 
Banfield, The Organisation of Lndustry Explained (1844; 2d 
ed., 1848); and Edward Gibbon Wakefield, A View of the 
Art of Colonisation (1849). Thomas Chalmers, well known in 
other fields of thought, was author of The Christian and Civic 
Economy of Large Towns (1821-36), and On Political Eco- 
nomy in Connection with the Moral State and Moral Prospects 
of Society (1832); he strongly opposed any system of legai 
cliarity, and, whilst justly insisting on the primary importance 
of morality, industry, and thrift as conditions of popular well- 
being, carried the Malthusian doctrines to excess. !N"or was 
Ireland without a share in the economic movement of the 
period.^ Whately, having been second Drummond professor 
of political economy at Oxford (in succession to Senior), and 
delivered in that capacity his Lidrodn.ctory Lectures (183 1), 
founded in 1832, when he went to Ireland as archbishop of 
Dublin, a similar professorship in Trinity College, Dublin. 
It was first held by Mountifort Longfield, afterwards Judge 
of the Landed Estates Court, Ireland (d. 1884). He published 



^ Samuel Crumpe, M.D., had published at Dublin in 1793 an Essay on 
ih^ Best Means of Providinj Employment for the People, which obtained 
a prize offered by the Koyal Irish Academy for the best dissertation on 
that subject. This is a meritorious work, and contains a good state- 
ment of some of the leading principles of Adam Smith. John Hely 
Hutchinson's Commercial Restraints of Ireland (1779) is important for 
the economic history of that country. 



142 POLITICAL ECONOMY. 

lectures on tlie science generally (1834), on Poor Lazrs (1834), 
and on Commerce and Absenteeism (1835), whicli were marked 
by independence of thought and sagacious observation. He 
was laudably free from many of tlie exaggerations of his con- 
temporaries ; he said, in 1835, *'in political economy we must 
not abstract too much," and protested against the assumption 
commonly made that " men are guided in all their conduct by 
a prudent regard to their own interest." James A. Lawson 
(afterwards Mr. Justice Lawson, d. 1887) also published 
some lectures (1844), delivered from the same chair,- which 
may still be read with interest and profit ; his discussion of 
the question of population is especially good ; he also asserted 
against Senior that tlie science is avide de faits, and that it 
must reason about the world and mankind as they really are. 
/' The most systematic and thorough-going of the earlier critics 
' of the Eicardian system was Eichard Jones (i 790-1855), pro- 
fessor at Haileybiiry. Jones has received scant justice at the 
hands of his successors. J. S. Mill, whilst using his work, 
gave his merits but faint recognition. Even Eoscher says 
that he did not thoroughly understand Eicardo, without giving 
any proof of that assertion, whilst he is silent as to the fact 
that much of what has been preached by the German his- 
torical school is found distinctly indicated in Jones's writings. 
He has been sometimes represented as having rejected the 
Andersonian doctrine of rent ; but such a statement is in- 
correct. Attributing the doctrine to Malthus, he says that 
that economist "showed satisfactorily that when land is culti- 
vated by capitalists living on the profits of their stock, and 
able to move it at pleasure to other employments, the expense 
of tilling the worst quality of land cultivated determines the 
average price of raw produce, while the difference of quality 
of the superior lands measures the rents yielded by them." 
What he really denied was the application of the doctrine to 
all cases where rent is paid ; he pointed out in his Essay on 
the Distribution of Wealth and on the Sources of Taxation, 
183 1, that, besides " farmers' rents," which, under the supposed 



SYSTEM OF NATURAL LIBERTY. 143 

conditions, conform to the above law, there aie "peasant 
rents," paid everywhere through the most extended periods 
of history, and still paid over by far the largest part of the 
earth's surface, which are not so regulated. Peasant rents he 
divided under the heads of (i) serf, (2) metayer, (3) ryot, and 
(4) cottier rents, a classification afterwards adopted in sub- 
stance by J. S. Mill ; and he showed that the contracts fixing 
their amount were, at least in the first three classes, deter- 
mined rather by custom than by competition. Passing to the 
superstructure of theory erected by Ricardo on the doctrine of 
rent which he had so unduly extended, Jones denied most of 
the conclusions he had deduced, especially the following : — 
that the increase of farmers' rents is always contemporary 
with a decrease in the productive powers of agriculture, and 
comes with loss and distress in its train; that the interests of 
landlords are always and necessarily opposed to the interests 
of the state and of every other class of society; that the diminu- 
tion of the rate of profits is exclusively dependent on the 
returns to the capital last employed on the land; and that 
wages can rise only at the expense of profits. 

The method followed by Jones is inductive ; his conclu- 
sions are founded on a wide observation of contemporary facts, 
aided by the study of history. *' If," he said, " we wish to 
make ourselves acquainted with the economy and arrange- 
ments by which the difi'erent nations of the earth produce and 
distribute their revenues, I really know but of one way to 
attain our object, and that is, to look and see. We must get 
comprehensive views of facts, that we may arrive at principles 
that are truly comprehensive. If we take a ditferent method, 
if we snatch at general principles, and content ourselves with 
confined observations, two things will happen to us. First, 
what we call general principles will often be found to have no 
generality — we shall set out with declaring propositions to be 
universally true which, at every step of our further progress, 
we shall be obliged to confess are frequently false ; and, 
secondly, we shall miss a great mass of useful knowledge which 



144 POLITICAL ECONOMY. 

those who advance to principles by a comprehensive examina* 
tion of facts necessarily meet with on their road.'' The world 
he professed to study was not an imaginary world, inhabited 
by abstract *^ economic men," but the real world with the 
different forms which the ownership and cultivation of land, 
and, in general, the conditions of production and distribution, 
assume at different times and places. His recognition of such 
different systems of life in communities occupying different 
stages in the progress of civilisation led to his proposal of what 
he called a *' political economy of nations." This was a protest 
against the practice of taking the exceptional state of facts 
which exists, and is indeed only partially realised, in a small 
corner of our planet as representing the uniform type of 
human societies, and ignoring the effects of the early history 
and special development of each community as influencing its 
economic phenomena. 

It is sometimes attempted to elude the necessity for a 
wider range of study by alleging a universal tendency in the 
social world to assume this now exceptional shape as its 
normal and ultimate constitution. Even if this tendency 
were real (which is only partially true, for the existing order 
amongst ourselves cannot be regarded as entirely definitive), 
it could not be admitted that the facts witnessed in our 
civilisation and those exhibited in less advanced communities 
are so approximate as to be capable of being represented by 
the same formulae. As Whewell, in editing Jones's RemainSj 
1859, well observed, it is true in the physical world that '^all 
things tend to assume a form determined by the force of 
gravity ; the hills tend to become plains, the waterfalls to eat 
away their beds and disappear, the rivers to form lakes in 
the valleys, the glaciers to pour down in cataracts." But are 
we to treat these results as achieved, because forces are in 
operation which may ultimately bring them about ? All human 
questions are largely questions of time ; and the economic 
phenomena which really belong to the several stages of the 
human movement must be studied as they are, unless we are con- 



SYSTEM OF NATURAL LIBERTY. 145 

tent to fall into grievous error both in our theoretic treatment of 
them and in the sohition of the practical problems they present. 

Jones is remarkable for his freedom from exaggeration and 
one-sided statement ; thus, whilst holding Malthus in, perhaps, 
undue esteem, he declines to accept the proposition that an 
increase of the means of subsistence is necessarily followed by 
an increase of population; and he maintains what is undoubtedly 
true, that with the growth of population, in all well-governed 
and prosperous states, the command over food, instead of 
diminishing, increases. 

Much of what he has left us — a large part of which is un- 
fortunately fragmentary — is akin to the labours of Cliffe Leslie 
at a later period. The latter, however, had the advantage of 
acquaintance with the sociology of Comte, which .gave him a 
firmer grasp of method, as well as a wider view of the general 
movement of society ; and, whilst the voice of Jones was but 
little heard amidst the general applause accorded to Eicardo in 
the economic world of his time, Leslie wrote when disillusion 
had set in, and the current was beginning to turn in England 
against the a priori economics. 

Comte somewhere speaks of the ^* transient predilection " 
for political economy which had shown itself generally in 
western Europe. This phase of feeling was specially notice- 
able in England from the third to the fifth decade of the 
present century. *' Up to the year 1818,'' said a writer in 
the Westminster Review^ " the science was scarcely known or 
talked of beyond a small circle of philosophers ; and legislation, 
so far from being in conformity with its principles, w^as daily 
receding from them more and more." Mill has told us what 
a change took place within a few years. " Political economy,'' 
he says, " had asserted itself with great vigour in public 
affairs by the petition of the merchants of London for free 
trade, drawn up in 1820 by Mr. Tooke and presented by 
Mr. Alexander Baring, ^ and by the noble exertions of Kicardo 

^ Afterwards Lord Ashburton. For this Petition, see M'Culloch'a 

K 



146 POLITICAL ECONOMY. 

during the few years of his parliamentary life. Hia writings, 
following up the impulse given by the bullion controversy, 
and followed up in their turn by the expositions and com- 
ments of my father and M'Culloch (whose writings in the 
Edinhui^gli Review during those years were most valuable), had 
drawn general attention to the subject, making at least partial 
converts in the Cabinet itself ; and Huskisson, supported 
by Canning, had commenced that gradual demolition of the 
protective system which one of their colleagues virtually 
completed in 1846, though the last vestiges were only swept 
away by Mr. Gladstone in i860." Whilst the science was 
thus attracting and fixing the attention of active minds, its 
unsettled condition was freely admitted. The differences 
of opinion among its professors were a frequent subject of 
complaint. But it was confidently expected that these discre- 
pancies w^ould soon disappear, and Colonel Torrens predicted 
that in twenty years there would scarcely " exist a doubt 
respecting any of its more fundamental principles." '' The 
prosperity," says Mr. Sidgwick, *' that followed on the aboli- 
tion of the corn laws gave practical men a most impressive and 
satisfying proof of the soundness of the abstract reasoning by 
which the expediency of free trade had been inferred." and 
when^ in 1848, "a masterly expositor of thought had published 
a skilful statement of the chief results of the controversies 
of the preceding generation," with the due " explanations and 
qualifications " of the reigning opinions, it was for some years 
generally believed that political economy had *' emerged from 
the state of polemical discussion," at least on its leading doc- 
trines, and that at length a sound construction had been erected 
on permanent bases. 

This expositor was John Stuart Mill (1806-73). He 
exeicised, without doubt, a greater influence in the field of 
English economics than any other writer since Eicardo. 
His systematic treatise has been, either directly or through 

Literature of Political Econowy^ p. 57. or Senior's Lectures on the Trans* 
mission of the Frerious Metals, &c., 2d ed., p. 78. 



SYSTEM OF NATURAL LIBERTY. 147 

manuals founded on it, especially that of Fawcett, the source 
from which most of our contemporaries in these countries 
have derived their knowledge of the science. But there are 
other and deeper reasons, as we shall see, which make him, in 
thi3 as in other departments of knowledge, a specially interest- 
ing and significant figure. 

In 1844 he published five Essays on some Unsettled Ques- 
tions of Political Economy, which had been written as early 
as 1829 and 1830, hut had, with the exception of the fifth, 
remained in manuscript. In these essays is contained any 
dogmatic contribution which he can be regarded as having 
made to the science. The subject of the first is the law^s 
of interchange between nations. He shows that, when two 
countries trade together in two commodities, the prices of the 
commodities exchanged on both sides (wliicli, as Kicardo had 
proved, are not determined by cost of production) will adjust 
themselves, through the play of reciprocal demand, in such a 
way that the quantities required by each country of the article 
which it imports from its neighbour shall be exactly sufficient 
tc pay for one another. This is the law which appears, with 
some added developments, in his systematic treatise under 
the name of the *' equation of international demand. '^ He 
then discusses the division of the gains. The most important 
practical conclusion (not, however, by any means an undis- 
puted one) at which he arrives in this essay is, that the 
relaxation of duties on foreign commodities, not operating as 
protection but maintained solely for revenue, should be made 
contingent on the adoption of some corresponding degree of 
freedom of trade with England by the nation from which the 
commodities are imported. In the second essay, on the in- 
fluence of consumption on production, the most interesting 
results arrived at are the propositions — (i) that absenteeism 
is a local, not a national, evil, and (2) that, whilst there 
cannot be permanent excess of production, there may be a 
temporary excess, not only of any one article, but of com- 
modities generally, — this last, however, not arising from over- 



uS POLITICAL ECONOMY. 

production, but from a want of commercial confidence. The 
third, essay relates to tlie use of tlie words '' productive" and 
*' unproductive '' as applied to labour, to consumption, and 
to expenditure. The fourth deals with profits and interest, 
especially explaining and so justifying E-icardo's theorem that 
*' profits depend on wages, rising as wages fall and falling as 
wages rise." What Ricardo meant was that profits depend 
on the cost of wages estimated in labour. Hence improve- 
ments in the production of articles habitually consumed by 
the labourer may increase profits without diminishing the real 
remuneration of the labourer. The last essay is on the de- 
finition and method of political economy, a subject later and 
more maturely treated in the author's System of Logic, 

In 1848 Mill publislied his Frincijples of Political Economy^ 
with some of their Aj^^plications to Social Philosojohy. This 
title, though, as we shall see, open to criticism, indicated on 
the part of the author a less narrow and formal conception of 
tlie field of the science than liad been common amongst his 
predecessors. He aimed, in fact, at producing a work which 
might replace in ordinary use the Wealth of Nations, which 
in his opinion was ^' in many parts obsolete and in all im- 
perfect." Adam Smith had invariably associated the general 
principles of the subject with their applications, and in treat- 
ing those applications had perpetually appealed to other and 
often far larger considerations than pure political economy 
affords. And in the same spirit Mill desired, whilst incor- 
porating all the results arrived at in the special science by 
Smith's successors, to exhibit purely economic phenomena in 
relation to the most advanced conceptions of his own time 
on the general philosophy of society, as Smith had done in 
reference to the philosophy of the eighteenth century.^ 

^ Curiously, in an otherwise well-executed Abridgment of Mill's work, 
published in the United States (1886) by J. Laurence Laughlin, as a 
text-book for colleges, all that " should properly be classed under the 
head of Sociology " has been omitted, Mill's own concej^tion being thus set 
aside, and his book made to conform to the common type. 



SYSTEM OF NATURAL LIBERTY. 149 

This design he certainly failed to realise. His book is ^erj 
fai indeed from being a *' modern Adam Smith." (It is an 
admirably lucid and even eleg;uit exposition of the Eicardian 
economics, the Malthusian theory being of course incorporated 
with these, but, notwithstanding the introduction of many 
minor novelties, it is, in its scientific substance, little or 
nothing more.) When Cliffe Leslie says that Mill so qualified 
and amended the doctrines of E-icardo' tliat the latter could 
scarcely have recognised them, he certainly goes a great deal 
too far; Senior really did more in that direction. Mill's 
effort is usually to vindicate his master where others have 
censured him, and to palliate his admitted laxities of expres- 
sion. Already his profound esteem for Kicardo's services to 
economics had been manifest in his Essays, where he says of 
him, with some injustice to Smitli, that, " having a science to 
create, '^ he could not ^' occupy himself with more than the 
leading principles," and adds that '' no one who has thoroughly 
entered into his discoveries " will find any difficulty in work- 
ing out " even the minutiye of the science." James Mill, too, 
had been essentially an expounder of Kicardo ; and the son, 
whilst greatly superior to his father in the attractiveness of 
his expository style, is, in regard to his economic doctrine, 
substantially at the same point of view. It is in their general 
philosophical conceptions and their views of social aims and 
ideals that the elder and younger Mill occupy quite diff'erent 
positions in the line of progress. The latter could not, for 
example, in his adult period have put forward as a theory of 
government the shallow sophistries which the plain good sense 
of jMacaulay sufficed to expose in the waitings of the former ; 
and he had a nobleness of feeling which, in relation to the 
higher social questions, raised him far above the ordinary 
coarse utilitarianism of the Benthamites. 

The larger and more philosophic spirit in which Mill dealt 
with social subjects was undoubtedly in great measure due 
to the influence of Comte, to whom, as Mr. Bain justly says, 
he was under greater obligations than he himself was disposed 



ISO . POLITICAL ECONOMY. 

to admit. Had he more completely undergone that influence, 
vre are sometimes tempted to think he might have wrought 
the reform in economics Avliicli still remains to he achieved, 
emancipating tli,e science from the a priori system, and 
founding a genuine theory of industrial life on observation 
in the broadest sense. But probably the time was not ripe 
for such a construction, and it is possible that Mill's native 
intellectual defects might have made him unfit for the task, 
for, as Eosclier has said, " ein historischer Kopf war er nicht." 
However this m.ight have been, the effects of his early train- 
ing, in which positive were largely alloyed with metaphysical 
elements, sufficed in fact to prevent his attaining a perfectly 
normal mental attitude. He never altogether overcame the 
vicious direction which he had received from the teaching 
of his father, and the influence of the Benthamite group in 
which he was brought up. Hence it was that, according to 
the striking expression of EoscheT-, his whole view of life was 
"zuwenig aus Einem Gusse.'' The incongruous mixture of 
the narrow dogmas of his youthful period with the larger 
ideas of a later stage gave a wavering and indeterminate 
character to his entire philosophy. He is, on every side, 
eminently *'un-final;" he represents tendencies to new forms 
of opinion, and opens new vistas in various directions, but 
founds scarcely anything, and remains indeed, so far as his 
own position is concerned, not merely incomplete but inco- 
herent.i It is, however, precisely this dubious position which 
seems to us to give a special interest to his career, by fitting 
him in a peculiar degree to prepare and facilitate transitions. 

What he himself thought to be " the chief merit of his 
treatise " was the marked distinction drawn between the 
theory of production and that of distribution, the laws of 

^ Mr. John Morley ("Mill on Religion," in Critical Miscellanies, 2d 
ser., 1877) betrays something like consternation at finding in ^liil'a 
posthumous writings statements of opinion distinctly at variance with 
pliilosophic doctrines he had energetically maintained during his whole 
life. 



SYSTEM OF NATURAL LIBERTY. 151 

the former being based on unalterable natural facts, whilst 
the course of distribution is modified from time to time 
by the changing ordinances of society. This distinction, we 
may. remark, must not be too absolutely stated, for the 
organisation of production changes with social growth, and, 
as Lauderdale long ago showed, the nature of the distribution 
in a community reacts on production. But there is a sub- 
stantial truth in the distinction, and the recognition of it tends 
to concentrate attention on the question — How can we im- 
prove the existing distribution of wealth ? Tlie study of this 
problem led Mill, as he advanced in years, further and further 
in the direction of socialism ; and, wliilst to the end of his 
life his book, however otherwise altered, continued to deduce 
the Ricardian doctrines from the principle of enlightened 
selfishness, he was looking forward to an order of things iu 
which synergy should be founded on sympathy. 

The gradual modification of his views in relation to the 
economic constitution of society is set forth in his Auto- 
biography. In his earlier days, he tells us, he *'had seen 
little further than the old school " (note this significant 
title) " of political economy into the possibilities of funda- 
mental improvement in social arrangements. Private pro- 
perty, as now understood, and inheritance appeared the 
dernier mot of legislation." The notion of proceeding to any 
radical redress of the injustice "involved in the fact that 
some are born to riches and the vast majority to poverty " 
he had then reckoned chimerical. But now his views were 
such as would " class him decidedly under the general designa- 
tion of socialist ; " he had been led to believe that the whole 
contemporary framework of economic life was merely tem- 
porary and provisional, and that a time would come when 
"the division of the produce of labour, instead of depending, 
as in so great a degree it now does, on the accident of birth, 
would be made by concert on an acknowledgetl principle of 
justice." "The social problem of the future" he considered 
to be " how to unite the greatest individual liberty of action," 



152 POLITICAL ECONOMY. 

"which was often compromised in socialistic schemes, "with 
a common ownership in the raw material of the globe, and 
an equal participation in all the benefits of combined labour." 
These ideas, he says, were scarcely indicated in the first edition 
of the Political Economy, rather more clearly and fully in the 
second, and quite unequivocally in the third, — the French 
Eevolution of 1848 having made the public more open to the 
reception of novelties in opinion. 

Whilst thus looking forward to a new economic order, 
he yet thinks its advent very remote, and believes that the 
inducements of private interest will in the meantime be in- 
dispensable.^ On the spiritual side he maintains a similar 
attitude of expectancy. He anticipates the ultimate disap- 
pearance of theism, and the substitution of a purely human 
religion, but believes that the existing doctrine will long be 
necessary as a stimulus and a control. He thus saps existing 
foundations without providing anything to take their place, 
and maintains the necessity of conserving for indefinite periods 
what he has radicall}^ discredited. ISTay, even whilst sowing 
the seeds of change in the direction of a socialistic organisation 
of society, he favours present or proximate arrangements which 
would urge the industrial world towards other issues. The 
system of peasant proprietorship of land is distinctly indi- 
vidualistic in its whole tendency ; yet he extravagantly praises 
it in the earlier part of his book, only receding from that 
laudation when he comes to the chapter on the future of the 
labouring classes. And the system of so-called co-operation in 
production which he so warmly commended in the later edi- 
tions of his work, and led some of his followers to preach as 
the one thing needful, would inevitably strengthen the principle 
of personal property, and, whilst professing at most to sub- 
stitute the competition of associations for that of individuals, 
would by no means exclude the latter. 

The elevation of the working classes he bound up too 

^ See also his Chapters on Socialism^ in Fortnightly Review^ 1879. 



SYSTEM OF NATURAL LIBERTY. 153 

exclusively with the Malthiisian ethics, on which he laid quite 
an extravagant stress, thoiigli, as Mr. Bain has observed, it is 
not eas;y to make out his exact views, any more than his 
father's, on this subject. We have no reason to think that he 
ever chano^ed his opinion as to the necessity of a restriction on 
population ; yet that element seems foreign to the socialistic 
idea to wliich he increasingly leaned. It is at least difficult 
to see how, apart from individual responsibility for the sup- 
port of a family, what Malthus called moral restraint could 
be adequately enforced. This difficulty is indeed the fatal 
flaw which, in Malthus's own opinion, vitiated the scheme of 
Godwin. 

C^Iill's openness to new ideas and his enthusiasm for im- 
provement cannot be too much admired. But there appears 
to have been combined with these fine traits in his mental 
constitution a certain want of practical sense, a failure to 
recognise and acquiesce in the necessary conditions of human 
life, and a craving for "better bread than can be made of 
wheat.p He entertained strangely exaggerated, or rather per- 
verted, notions of tlie "subjection," the capacities, and the 
rights of women. He encourages a spirit of revolt on the part 
of working men against their perpetual condemnation, as a 
class, to the lot of living by wages, without giving satisfactory 
proof that this state of things is capable of change, and with- 
out showing that such a lot, duly regulated by law and 
morality, is inconsistent with their real happiness. He also 
insists on the "independence" of the working class — wliich, 
according to him, fara da se — in such a way as to obscure, if 
not to controvert, the truths that superior rank and wealth are 
naturally invested with social power, and are bound in duty 
to exercise it for the benefit of tlie community at large, and 
especially of its less favoured members. And he attachby a 
quite undue importance to mechanical and, indeed, illusory 
expedients, such as the limitation of the power of bequest and 
the confiscation of the "unearned increment" of rent. 

With respect to economic method also, he shifted his post* 



154 POLITICAL ECONOMY. 

tioii ; yet to the end occupied uncertain ground. In the fifth 
of his early essays he asserted that the method a jpriori is the 
only mode of investigation in the social sciences, and that the 
method a ^6>s^e7'/6)n " is altogether inefficacious in those sciences, 
as a means of arriving at any considerable body of valuable 
truth." Ys^hen he wrote his Logic, he had learned from 
Comte that the a posteriori method — in the form which lie 
chose to call '* inverse deduction" — was the only mode of 
arriving at truth in general sociology ; and his admission of 
this at once renders the essay obsolete. But, unwilling to 
relinquish the a 'priori method of his youth, he tries to estab- 
lish a distinction of two sorts of economic inquiry, one of 
which, though not the other, can be handled by that method. 
Sometimes he speaks of political economy as a department 
" carved out of the general body of the science of society ; " 
whilst on the other hand the title of his systematic work im- 
plies a d^ubt whether political economy is a part of " social 
philosophy'' at all, and not rather a study preparatory and 
auxiliary to it. Thus, on the logical as well as the dogmatic 
side, he halts between two opinions. Notwithstanding his 
misgivings and even disclaimers, he yet remained, as to method, 
a member of the old school, and never passed into the new or 
*' historical " school, to which the future belongs. 

The question of economic method was also taken up by the 
ablest of his disciples, John Elliott Cairnes (1824-75), who 
devoted a volume to the subject (Lr^^zcaZ Method of Political 
Economy, 1857 ; 2d ed., 1875). Professor Walker has spoken 
of the method advocated by Cairnes as being different from 
that put forward by Mill, and has even represented the former 
as similar to, if not identical with, that of the German his- 
torical school. But this is certainly an error. Cairnes, not- 
withstanding some apparent vacillation of view and certain 
concessions more formal than real, maintains the utmost rigour 
of the deductive method ; \Je distinctly affirms that in political 
economy there is no room for induction at all) *'the economist 
starting with a knowledge of ultimate causes," and being thus, 



SYSTEM OF NATURAL LIBERTY. 155 

"at the outset of his enterprise, at the position which the 
physicist only attains after ages of laborious research." He 
does not, indeed, seem to be advanced beyond the point of 
view of Senior, who professed to deduce all economic truth 
from four elementary propositions. Whilst Mill in his Logic 
represents verification as an essential part of the process of 
demonstration of economic laws, Cairnes holds that, as they 
*'are not assertions respecting the character or sequence of 
phenomena " (though what else can a scientific law be ?), " they 
can neither be established nor refuted by statistical or docu- 
mentary evidence." A proposition which affirms nothing re- 
specting phenomena cannot be controlled by being confronted 
with phenomena. (^Notwithstanding the unquestionable ability 
of his book, it appears to mark, in some respects, a retro- 
gression in methodology, and can for the future possess only 
an historical interest> 

Eegarded in that light, the labours of Mill and Cairnes on 
the method of the science, though intrinsically unsound, had 
an important negative effect. They let down the old political 
economy from its traditional position, and reduced its extra- 
vagant pretensions by two modifications of commonly accepted 
views. First, whilst Eicardo had never doubted that in all 
his reasonings he was dealing with human beings as they 
actually exist, they showed that the science must be regarded 
as a purely hypothetic one. Its deductions are based on 
unreal, or at least one-sided, assumptions, the most essential of 
which is that of the existence of the so-called " economic man," 
a being wdio is influenced by two motives only, that of ac- 
quiring wealth and that of avoiding exertion ; and only so far 
as the premises framed on this conception correspond with fact 
can the conclusions be depended on in practice. Senior in 
vain protested against such a view of the science, which, as he 
saw, compromised its social efficacy ; Avhilst Torrens, who had 
previously combated tlie doctrines of Eicardo, hailed Mill's 
new presentation of political economy as enabling him, whilst 
in one sense rejecting those doctrines, in another sense to 



IS6 POLITICAL ECONOMY. 

accept them. Secondly, beside economic science, it had often 
been said, stands an economic art, — the former ascertaining 
truths respecting the laws of economic phenomena, the latter 
prescribing the right kind of economic action ; and many had 
assumed that, the former being given, the latter is also in our 
possession — that, in fact, we have only to convert theorems 
into precepts, and the work is done. But Mill and Cairn es 
made it plain that this statement could not be accepted, that 
action can no more in the economic world than in any other 
province of life be regulated by considerations borrowed from 
one department of things only; tliat economics can suggest 
ideas which are to be kept in view, but that, standing alone, 
it cannot direct conduct — an office for which a wider prospect 
of human affairs is required. This matter is best elucidated 
by a reference to Comte's classification, or rather hierarchical 
arrangement, of the sciences. Beginning with the least com- 
plex, mathematics, we rise successively to astronomy, physics, 
chemistry, thence to biology, and from it again to sociology. 
In the course of this ascent we come upon all the great 
laws which regulate the phenomena of the inorganic world, 
of organised beings, and of society. A further step, however, 
remains to be taken — namely, to morals ; and at this point 
the provinces of theory and practice tend to coincide, because 
every element of conduct has to be considered in relation 
to the general good. In the final synthesis all the previous 
analyses have to be used as instrumental, in order to determine 
how every real quality of things or men may be made to 
converge to th^e welfare of Humanity. 

Cairnes's most important economic publication was his last, 
entitled Some Leading Principles of Political Economy newly 
Expounded, 1874. In this work, which does not profess to 
be a complete treatise on the science, he criticises and emends 
the statements which preceding writers had given of some of 
its principal doctrines, and treats elaborately of the limitations 
with which they are to be understood, and the exceptions to 
them which may be produced by special circumstances. Whilst 



SYSTEM OF NATURAL LIBERTY. 157 

marked by great ability, it affords evidence of what has been 
justly observed as a Aveakness in Cairiies's mental constitution 
— his " deficiency in intellectual sympathy," and consequent 
frequent inability to see more than one side of a truth. 

The three divisions of the book relate respectively to (i) 
value, (2) labour and capital, and (3) international trade. In 
the first he begins by elucidating the meaning of the word 
** value," and under this head controverts the view of Jevons 
that the exchange value of anything depends entirely on its 
utility, without, perhaps, distinctly apprehending what Jevons 
meant by this proposition. On supply and demand he shows, 
as Say had done before, that these, regarded as aggregates, are 
not independent, but strictly connected and mutually depen- 
dent phenomena — identical, indeed, under a system of barter, 
but, under a money system, conceivable as distinct. Supply 
and demand with respect to particular commodities must be 
understood to mean supply and demand at a given price ; and 
thus we are introduced to the ideas of market price and normal 
price (as, following Cherbuliez, he terms what Smith less 
happily called natural price). Normal price again leads to the 
consideration of cost of production, and here, against Mill and 
others, he denies that profit and wages enter into cost of pro- 
duction; in other words, he asserts what Senior (whom he 
does not name) had said before him, though he had not con- 
sistently carried out the nomenclature, that cost of production 
is the sum of labour and abstinence necessary to production, 
wages and profits being the remuneration of sacrifice and 
not elements of it. But, it may well be asked. How can an 
amount of labour be added to an amount of abstinence ? Must 
not wages and profits be taken as " measures of cost " '? By 
adhering to the conception of " sacrifice," he exposes the 
emptiness of the assertion that " dear labour is the great 
obstacle to the extension of British trade" — a sentence in 
which " British trade " means capitalists' profits. At this 
point we are introduced to a doctrine now first elaborated, 
though there are indications of it in Mill, of whose theory of 



158 POLITICAL ECONOMY. 

international values it is in fact an extension. In foreign 
trade cost of production, in Cairnes's sense, does not regu- 
late values, because it cannot perform that function except 
under a regime of effective competition, and between different 
countries effective competition does not exist. But, Cairnes asks, 
to what extent does it exist in domestic industries? So far 
as capital is concerned, he thinks the condition is sufficiently 
fulfilled over the whole field — a position, let it be said in 
passing, which he does not seem to make out, if we consider 
the practical immobility of most invested, as distinct from 
disposable, capital. But in the case of labour the requisite 
competition takes place only within certain social, or rather 
industrial, strata. The world of industry may be divided into 
a series of superposed groups, and these groups are practically 
^' non-com peeing," the disposable labour in any one of them 
being rarely capable of choosing its field in a higher.^ The 
law that cost of production determines price cannot, therefore, 
be absolutely stated respecting domestic any more than respect- 
ing international exchange ; as it fails for the latter univer- 
sally, so it fails for the former as between non-competing 
groups. The law that holds between these is similar to that 
governing international values, wliich may be called the equa- 
tion of reciprocal demand. Such a state of relative prices will 
establish itself amongst the products of these groups as shall 
enable that portion of the products of each group which is 
applied to the purchase of the products of all other groups 
to discharge its liabilities towards those other groups. The 
reciprocal demand of the groups determines the " average 
relative level" of prices within each group; whilst cost of 

^ Economists are fond of comparins: the rate of profit or wages ir cue 
Elation (using this word in its economic sense) to a single fluid surface 
which is continually disturbed by transient influences and continually 
tending to recover its level. We must compare these rates in different 
nations to reservoirs which, not communicating with each other, stand 
always at different, though variable, levels. And the latter comparison 
will apply also to the rates (at least of wages) in different economio 
*' groups," or strata, within the same community. 



SYSTEM OF NATURAL LIBERTY. 159 

production regulates tlie distribution of price among the 
individual products of eacli group. This theorem is perhaps 
of no great practical value ; but the tendency of the whole 
investigation is to attenuate the importance of cost of pro- 
duction as a regulator of normal price, and so to show that 
ye*, another of the accepted doctrines of the science had been 
propounded in too rigid and absolute a form. As to market 
price, the formula by which Mill had defined it as the price 
which equalises demand and supply Cairnes shows to be an 
identical proposiiion, and he defines it as the price which 
most advantageously adjusts the existing supply to the exist- 
ing demand pending tiie coming forward of fresh supplies from 
the sources of production. 

His second part is chiefly remarkable for his defence of 
what is known as the wages fund doctrine, to w^hich we 
adverted w^hen speaking of Senior. Mill had given up this 
doctrine, having been convinced by Thornton that it w^as 
erroneous; but Cairnes refused to follow his leader, w^ho, as 
lie believes, ought not to have been convinced.^ After having 
given wdiat is certainly a fallacious reply to Longe's criticism 
of the expression " average rate of wages," he proceeds to 
vindicate the doctrine in question by the consideration that 
the amount of a nation's wealth devoted at any time to the 
payment of wages — if the character of the national industries 
and the methods of production employed remain the same — 
is in a definite relation to the amount of its general capital; 
the latter being given, the former is also given. In illus- 
trating his view of the subject, he insists on the principle 
(true in the main, but too absolutely formulated by Mill) that 
"demand for commodities is not demand for labour." It is 
not necessary here to follow^ his investigation, for his reason- 
ing has not satisfied his successors, with the exception of 

' Jevons strangely says, in the Preface to his Tlieory of Political 
Economy, 2d ed., that the wage fund doctrine " has been abandoned 
by most English economists owing to the attacks," amongst others, "of 
Cairnes." Cairnes was, in truth, a supporter of the doctrine. 



l6o POLITICAL ECONOMY. 

Fawcett, and the question of wages is now commonly treated 
without reference to a supposed determinate wages fund. 
Cairn es next studies trades-unionism in relation to wages, and 
arrives in substance at the conclusion that the only way in 
which it can affect their rate is by accelerating an advance which 
must ultimately have taken place independently of its action. 
He also takes occasion to refute Mr. (now Lord) Brassey's 
supposed law of a uniform cost of labour in every part of 
the world. Turning to consider the material prospects of the 
working classes, he examines the question of the changes 
which may he expected in the amount and partition of the 
fund out of which abstinence and labour are remunerated. 
He here enunciates the principle (which had been, however, 
stated before him by Eicardo and Senior) that the increased 
productiveness of industry will not affect either profit or wages 
unless it cheapen the commodities which the labourer con- 
sumes. These latter being mostly commodities of which raw 
produce is the only or principal element, their cost of produc- 
tion, notwithstanding improvements in knowledge and art, 
will increase unless the numbers of the labouring class be 
steadily kept in check ; and hence the possibility of elevating 
the condition of the labourer is confined within very narrow 
limits, if he continues to be a labourer only. The condition 
of any substantial and permanent improvement in his lot is 
that he should cease to be a mere labourer — that profits should 
be brought to reinforce the wages fund, which has a tendency, 
in the course of industrial progress, to decline relatively to the 
general capital of a country. And hence Cairn es — abandon- 
ing the purely theoretic attitude which he elsewhere represents 
as the only proper one for the economist — recommends the 
system of so-called co-operation (that is, in fact, the abolition of 
the large capitalist) as offering to the Avorking classes *'the sole 
means of escape from a harsh and hopeless destiny," and puts 
aside rather contemptuously the opposition of the Positivists 
to this solution, which yet many besides the Positivists, as, 
for example, Leslie and F. A. Walker, regard as chimerical. 



SYSTEM OF NATURAL LIBERTY. i6i 

The third part is devoted mainly to an exposition of Ricnrdo's 
doctrine of the conditions of international trade and i\I ill's 
theory of international values. The former Cairnc.^s modifies 
by introducing his idea of the partial influence of reciprocal 
demand, as distinguished from cost of production, on the regu- 
lation of domestic prices, and founds on this rectitication an 
interesting account of the connection between the wages pre- 
vailing in a country and the character and course of its ex- 
ternal trade. He emends Mill's statement, which represented. 
the produce of a country as exchanging for that of other coun- 
tries at such values "as are required in order that the whole 
of her exports may exactly pay for the whole of her imports '' 
by substituting for the latter phrase the condition that each 
country should by means of her exports discharge all her 
foreign liabilities — in other words, by introducing the consi- 
deration of the balance of debts. This idea was not new ; 
it had been indicated by John Leslie Foster as early as 1804,^ 
and was touched on by Mill himself; but Cairnes expounds it 
well ; and it is important as clearing away connnon misconcep- 
tions, and sometimes removing groundless alarms.^ Passing 
to the question of free trade, he disposes of some often-repeated 
protectionist arguments, and in particular refutes the American 
allegation of the inability of the highly-paid labour of that 
country to compete with the "pauper labour" of Europe. 
He is not so successful in meeting the "political argument," 
founded on the admitted importance for civilisation of develop- 
ing diversified national industries ; and he meets only by one 
of the highly questionable commonplaces of the doctrinaire 
economists Mill's proposition that protection may foster nascent 
industries really adapted to a country till they have struck 
root and are able to endure the stress of foreign competition. 

We have dwelt at some length on this work of Cairnes, 
not only because it presents the latest forms of several accepted 

^ In his Essay on the Principle of Commercial Exchanges, 
' On this whole subject see Professor C. F. Bastable's Theory of Inter* 
national Trade^ 1887. 

L 



i62 POLITICAL ECONOMY. 

economic doctrines, but also because it is, and, we believe^ 
will remain, the last important product of the old English 
school. , The author at the outset expresses tlie hope that it 
will strengthen, and add consistence to, the scientific fabric 
" built up by the lal^ours of Adam Smith, Malthas, Ricardo, 
and Mill." Whilst recognising with him the great merits 
of Smith, and the real abilities and services of his three 
successors here named, we cannot entertain the same opinion 
as Cairnes respecting the permanence of the fabric they con- 
structed. We hold that a new edifice is required, incorporating 
indeed many of the materials of the old, but planned on dif- 
ferent ideas and in some respects with a view to difFerent ends 
— above all, resting on different philosophic foundations, and 
having relation in its whole design to the more comprehensive 
structure of which it will form but one department, namely, 
the general science of society. 

We shall hereafter have occasion to refer to Cairnes's Essays 
in rolitical Economy, 1873. His Slave Power (1862) was the 
most valuable work which appeared on the subject of the 
great American conflict. 

France. 

All the later European schools presuppose — in part adopting, 
in part criticising — the work of the English economists from 
Smith ^ to Ricardo and the Epigoni. The German school has 
had in a greater degree than any other a movement of its own 

^ The first French translation of the Wealth of Nations, by Blavet, 
appeared in the Journal de V Agriculture, du Commerce, des Finances, et 
des Arts, 1779-80 ; new editions of it were published in 1 781, 1788, and 
1800 ; it was also printed at Amsterdam in 1784. Smith himself recom- 
mended it in his third edition of the original as excellent. In 1790 
appeared the translation by Roucher, to which Condorcet had intended 
to add notes, and in 1802 that by Count Germain Garnier, executed 
daring his exile in England, which is now considered the standard ver- 
sion, and has been reproduced, with notes by Say, Sismondi, Blanqui, 
&c., in the Collection des Principaux ^conomistes. 



SYSTEM OF NATURAL LIBERTY. 163 

— following, at least in its more recent period, an original 
method, and tending to special and characteristic conclusions.'.' 
The French school, on the other hand, — if we omit the 
socialists, who do not here come under consideration, — has 
in the main reproduced the doctrines of the leading English 
thinkers, — stopping short, however, in general of the extremes 
of Eicardo and his disciples. In the field of exposition the 
French are unrivalled ; and in political economy they have 
produced a series of more or less remarkable systematic trea- 
tises, text books, and compendiums, at the head of which 
stands the celebrated work of J. B. Say. But the numl^er 
of seminal minds which have appeared in French economic 
literature — of writers who have contributed important truths, 
introduced improvements of method, or presented the phe- 
nomena under new lights — has not been large. Sismondi, ^ 
Dunoyer, and Bastiat will deserve our attention, as being the 
most important of those who occupy independent positions 
(whether permanently tenable or not), if we pass over for the 
.present the great philosophical renovation of Auguste Comte, 
which comprehended actually or potentially all the branches 
of sociological inquiry. Before estimating the labours of 
Bastiat, we shall find it desirable to examine the views of 
Carey, the most renowned of American economists, with which 
the latest teachings of the ingenious and eloquent Frenchman 
are, up to a certain point, in remarkable agreement. Cournot, 
too, must find a place among the French writers of this period, 
as the chief representative of the conception of a mathematical 
method in political economy. 

Of Jean Baptiste Say (1767-183 2) Eicardo says — "He was 
the first, or among the first, of Continental writers who justly 
appreciated and applied the principles of Smith, and has 
done more than all other Continental writers taken together 
to recommend that enlightened and beneficial system to the 
nations of Europe." The Wealth of Nations in the original 
language was placed in Say's hands by Claviere, afterwards 
minister, then director of the assurance society of which 



I64 POLITICAL ECONOMY. 

Say was a clerk ; and the book made a powerful impression 
on liim. Long afterwards, when Dupont de Nemours com- 
plained of his injustice to the ph3^siocrats, and claimed him as, 
through Smitli, a spiritual grandson of Qnesnay and nephew 
of Turgot, he replied that he had learned to read in the 
writings of the mercantile school, had learned to think in those 
of Quesnay and his followers, but that it was in Smith that 
he had learned to seek the causes and the effects of social 
phenomena in the nature of thing.^, and to arrive at this last 
by a scrupulous analysis. His Traite cC Eiconomie Politique 
(1803) was essentially founded on Smith's work, but he aimed 
at arranging the materials in a more logical and instructive 
order. ^ He has the French art of easy and lucid exposition, 
though his facility sometimes degenerates into superficiality ; 
and hence his book became popular, both directly and through 
translations obtained a wide circulation, and diffused rapidly 
through the civilised world the doctrines of the master. Say's 
knowledge of common life, says Eoscher, was equal to Smith's; 
but he falls far below him in living insight into larger political 
phenomena, and he carefully eschews historical and philoso- 
phical explanations. He is sometimes strangely shallow, as 
when he says that •' the best tax is that smallest in amount." 
(He appears not to have much claim to the position of an 
original thinker in political economy^) Ricardo, indeed, speaks 
of him as having '* enriched the science, by several discussions, 
original, accurate, and profound." What he had specially in 
view in using these words was what is, perhaps rather pre- 
tentiously, called Say's theorie des debouches, with his con- 
nected disproof of the possibility of a universal glut. The 
theory amounts simply to this, that buying is also selling, and 
that it is by producing that we are enable*! to purchase the 
products of others. Several distinguished economists, especially 

^ He grossly exaggerated Smith's faults of method. Thus he says — 
" L'ouvrage de Smith n'est qu'un assemblage confus des priacipes lea 
plus sains de I'Ecouomie politique . . . son livre est un vaste chaos 
d'id^es justes '* (iJiscours Prellminaire). 



SYSTEM OF NATURAL LIBERTY. 165 

Jfaltlius and Sismondi, in consequence chiefly of a misinter- 
pretation of the phenomena of commercial crises, maintained 
that there might be general over-supply or excess of all 
commodities above the demand. This Say rightly denied. 
A particular branch of production may, it must indeed be 
admitted, exceed the existing capabilities of the market ; but, 
if we remember that supply is demand, that commodities are 
purchasing power, we cannot accept the doctrine of the possi- 
bility of a universal glut without holding that we can have 
too much of everything — that " all men can be so fully 
provided with the precise articles they desire as to afford no 
market for each other's superfluities. '^ Whatever services, 
however, Say may have rendered by original ideas on those or 
other subjects, his great merit is certainly that of a propa- 
gandist and populariser. 

The imperial police would not permit a second edition of 
his work to be issued without the introduction of changes 
which, with noble independence, he refused to make ; and 
that edition did not therefore appear till 1814. Three other 
editions were published during the life of the author — in 1817, 
18 1 9, and 1826. In 1828 Say published a second treatise, 
Cours complet rV ^conomie Politiqice 'pratviue, which contained 
the substance of his lectures at the Conservatoire des Arts et 
^letiers and at the College de France. Whilst in his earlier 
treatise he had kept witliin the narrow limits of strict econo- 
mics, in his later work he enlarged the sphere of discussion, 
introducing in particular many considerations respecting the 
economic 'nfluence of social institutions. 

Jean Charles L. Simonde de Sismondi (1773-1842), author 
of the Hisioive des Rexmhliques ,Italiennes du moyen age, 
represents in the economic field a protest, founded mainly 
on humanitarian sentiment, against the dominant doctrines. 
He wrote first a treatise De la Ricliesse Commerciale (1803), 
in which he followed strictly the princi|)les of Adam Smith. 
But he afterwards came to regard these principles as insuffi- 
cient and requiring modification. He contributed an article on 



I66 POLITICAL ECONOMY. 

political economy to the FAinhurgh EiicyrJopcBdia, in wliich 
his new views were partially indicated. They were fully de- 
veloped in his principal economic work, Nouveaux Prlncipes 
d^j^conomie Politiq^ie, ou de la Richesse dans ses rapports avec 
la Population (1819; 2d ed., 1827). This work, as he tells 
us, was not received with favour by economists, a fact wliich 
he explains by the consideration that he had " attacked an 
orthodoxy — an enterprise dangerous in philosophy as in reli- 
gion." According to his view, the science, as commonly 
understood, was too much of a mere chrematistic : it studied 
too exclusively the means of increasing wealth, and not 
sufficiently the use of this wealth for producing general 
happiness. i^The practical system founded on it tended, as 
he believed, not only to make the rich richer, but to make 
the poor poorer and more dependent ; and he desired to fix 
attention on the question of distribution as by far the most 
important, especially in the social circumstances of recent 
times. 

The personal union in Sismondi of three nationalities, the 
Italian, the French, and the Swiss, and his comprehensive 
historical studies, gave him a special largeness of view ; and 
he was filled with a noble sym23athy for the suffering members 
of society. .He stands nearer to socialism than any other 
French economist proper, but it is only in sentiment, not in 
opinion, that he approximates to it ; he does not recommend 
my socialistic scheme. On the contrary, he declares in a 
memorable passage that, wliilst he sees where justice lies, he 
must confess himself unable to suggest the means of realising 
it in practice; the division of the fruits of industry between 
those who are united in^ their production appears to him 
vicious ; but it is, in his judgment, almost beyond human 
power to conceive any system of property absolutely different 
from that wliich is known to us by experience. He goes no 
further than protesting, in view of the great evils which he 
saw around him, against the doctrine of laisser faire^ and 
invoking, somewhat vaguely, the intervention of Governments 



SYSTEM OF NATURAL LIBERTY. 167 

to "regulate the progress of wealth " and to protect the weaker 
members of the community. 

His frank confession of impotence, far wiser and more 
honourable than the suggestion of precipitate and dangerous 
remedies, or of a recurrence to outworn mediaeval institution^, 
has not affected the reputation of the work. A prejudice was 
indeed early created against it in consequence of its partial 
harmony of tone, though, as we have seen, not of policy, with 
socialism, which was then beginning to show its strength, as 
well as by the rude way in which his descriptions of the 
modern industrial system, especially as it existed in England, 
disturbed the complacent optimism of some members of the 
go-called orthodox school. These treated the book w4th ill- 
disguised contempt, and Bastiat spoke of it as preaching an 
economie politique ct rebours. But it has held its place in the 
literature of the science, and is now even more interesting 
than when it first appeared, because in our time there is a 
more general disposition, instead of denying or glossing over 
the serious evils of industrial society, to face and remove or at 
least mitigate them. The laisser faire doctrine, too, has been 
discredited in theory and abandoned in practice ; and we are 
ready to admit Sismondi's view of the State as a power not 
merely intrusted with the maintenance of po^ce, but charged 
also with the mission of extending the benetits of the social 
union and of modern progress as widely as possible through 
all classes of the community. Yet the impression which his 
treatise leaves behind it is a discouraging one ; and this be- 
cause he regards as essentially evil many things which seem 
to be the necessary results of the development of industry, 
/The growth of a wealthy capitalist class and of manufacture 
on the great scale, the rise of a vast body of workers who live 
by their labour alone, the extended application of machines, 
large landed properties cultivated with the aid of the most 
advanced appliances — all these he dislikes and deprecates ; 
but they appear to be inevitable. The problem is, how to 
regulate and moralise the system they imply ; but we must 



168 POLITICAL ECONOMY. 

surely accept it in principle, unless we aim at a thorough 
social revolution. Sismondi may be regarded as the precursor 
of the German economists known under the inexact desig- 
nation of ^^ Socialists of the Chair ; " but their writings are 
much more hopeful and inspiring. 

To tlie subject of population he devotes special care, as of 
great importance for the welfare of the working classes. So 
far as agriculturists are concerned, he thinks the system of 
what he calls patriarchal exploitation, where the cultivator is 
also proprietor, and is aided by his family in tilling the land 
— a law of equal division among the natural heirs being 
apparently presupposed — the one which is most efficacious in 
preventing an undue increase of the population. The father 
is, in such a case, able distinctly to estimate the resources 
available for his children, and to determine the stage of sub- 
division which would necessitate the descent of the family 
from the material and social position it had previously occu- 
pied. When children beyond this limit are born, they do not 
marry, or they choose amongst their number one to continue 
the race. This is the view which, adopted by J. S. Mill, 
makes so great a figure in the too favourable presentation by 
that writer of the system of peasant proprietors. 

In no French economic writer is greater force or general 
solidity of thought to be found tlian in Charles Dunoyer 
(i 786-1862), author of La Liberie du Travail (1845; the 
substance of the first volume had appeared under a different 
title in 1825), honourably known for his integrity and inde- 
pendence under the regime of the Eestoration. What makes 
him of special importance in the history of the science is 
his view of its philosophical constitution and method. With 
respect to method, he strikes the keynote at the very outset 
in the words " rechercher experimental ement," and in profes- 
sing to build on '* les donnees de Tobservation et de Texperi- 
ence." He shows a marked tendency to widen economics 
into a general science of society, expressly describing political 
economy as having for its province the whole order of thinga 



SYSTEM OF NATURAL LIBERTY. 169 

which results from the exercise and development of the social 
forces. This larger study is indeed better named Sociology ; 
and economic studies are better regarded as forming one depart- 
ment of it. But the essential circumstance is that, in Dunoyer's 
treatment of his great subject, the widest intellectual, moral, 
and political considerations are inseparably combined with 
purely economic ideas. It must not be supposed that by 
liberty, in the title of his work, is meant merely freedom 
from legal restraint or administrative interference ; he uses it 
to express whatever tends to give increased efficiency to labour. 
He is thus led to discuss all the causes of human progress, 
and to exhibit them in their historical working. 

Treating, in the first part, of the influence of external con- 
ditions, of race, and of culture on liberty in this wider sense, 
he proceeds to divide all productive effort into two great 
classes, according as the action is exercised on things or on 
men, and censures the economists for having restricted their 
attention to the former. He studies in his second and third 
parts respectively the conditions of the efficiency of these 
two forms of human exertion. In treating of economic life, 
strictly so called, he introduces his fourfold division of material 
industry, in part adopted by J. S. ISIill, as " (i) extractive, 
(2) voituriere, (3) maiuifacturiere, (4) agricole," a division 
which is useful for physical economics, but will always, when 
the larger social aspect of things is considered, be inferior 
to the more commonly accepted one into agricultural, manu- 
facturing, and commercial industry, banking being supposed 
as common president and regulator. Dunoyer, having in view 
only action on material objects, relegates banking, as w^ell as 
commerce proper, to the separate head of exchange, which, 
along with association and gratuitous transmission (whether 
inter vivos or mortis causa), he classes apart as being, not :n- 
dustries, in the same sense with the occupations named, but 
yet functions essential to the social economy. The industries 
which act on man he divides according as they occupy them- 
selves with (i) the amelioration of our physical nature, (a) 



I70 POLITICAL ECONOMY. 

the ciiltnre of our imagination and sentiments, (3) the edu« 
cation of our intelligence, and (4) tlie improvement of oui 
moral habits ; and he proceeds accordingly to study the social 
offices of the physician, the artist, the educator, and the [)riest. 
^Ve meet in Dunoyer the ideas afterwards emphasised by 
liastiat that the real subjects of human exchange are services; 
that all value is due to human activity ; that the powers of 
nature always render a gratuitous assistance to the labour of 
man ; and that the rent of land is really a form of interest on 
invested capital. Though he had disclaimed the task of a 
practical adviser in the often-quoted sentence — *' Je n'impose 
rien ; je ne propose meme rien ; j 'expose," he iinds himself, 
like all economists, unable to abstain from offering counsel. 
And his policy is opposed to any state interference with in- 
dustry. Indeed he preaches in its extreme rigour the laisser 
faire doctrine, which he maintains principally on the ground 
that the spontaneous efforts of the individual for the improve- 
ment of his condition, by developing foresight, energy, and 
perseverance, are the most efficient means of social culture. 
But he certainl}^ goes too far w^hen he represents the action 
of Governments as normally always repressive and never 
directive. He was doubtless led into this exaggeration by 
his opposition to the artificial organisations of labour proposed 
by so many of his contemporaries, against which he had to 
vindicate the principle of competition ; but his criticism of 
tliese schemes took, as Conite remarks, too absolute a character, 
tending to the perpetual interdiction of a true systematisation 
of industry,^ 

America. 

At this point it will be convenient to turn aside and notice 
the doctrines of the American economist Carey. Kot much 
liad been done before him in the science by citizens of the 
United States. Benjamin Franklin, otherwise of world-wide 

^ The French economists are continued on page 175. 



SYSTEM OF NATURAL LIBERTY. 171 

renown, was author of a niiiuber of tracts, in most of which 
he merely enforces practical lessons of industry and thrift, 
but in some throws out interesting theoretic ideas. Thus, 
fifty years before Smith, he suggested (as Petty, however, had 
already done) human labour as the true measure of vahie 
(Modest Inquiry into the Nature and Necessity of a PaipHv 
Currency, 1721), and in his Observations concerning tlte In- 
crease of Mankind (1751) he expresses views akin to those of 
Mai thus. Alexander Hamilton, secretary of the treasury, in 
1791 presented in his ofificial capacity to the House of Eepre- 
sentalives of the United States a Keport on the measures by 
which home manufactures could be promoted.^ In this docu- 
ment he gives a critical account of the theory of the subject, 
represents Smith's system of free trade as possible in prac- 
tice only if adopted by all nations simultaneously, ascribes 
to manufactures a greater productiveness than to agriculture, 
and seeks to refute the objections against the development 
of the former in America founded on the want of capital, the 
high rate of wages, and the low price of land. The conclusion 
at wliich he arrives is tliat for the creation of American manu- 
factures a system of moderate protective duties was necessary, 
and he proceeds to describe the particular features of such a 
system. There is some reason to believe that the German 
economist List, of whom we shall speak hereafter, was in- 
fluenced by Hamilton's work, having, during his exile from 
his native country, resided in the United States. 

Henry Charles Carey (17 93-1 879), son of an American 
citizen who had emigrated from Ireland, represents a reaction 
against the dispiriting character which the Smithian doctrines 
had assumed in the hands of Mallhus and Kicardo. His aim 
was, whilst adhering to the individualistic economy, to place 
it on a higher and surer basis, and fortify it against the 
assaults of socialism, to which some of the Ricardian tenets 
had exposed it. The most comprehensive as well as mature 
exposition of his vie\vs is contained in his Principles of Social 

^ Hamilton's Works, edited by H. C. Lodge, vol. iii. p. 294. 



172 POLITICAL ECONOMY. 

Science (1859). Inspired with the optimistic sentiment natural 
to a young and rising nation with abundant undeveloped 
resources and an unbounded outlook towards the future, 
he seeks to show that there exists, independently of human 
wills, a natural system of economic laws, which is essentially 
beneficent, and of which the increasing prosperity of the 
whole community, and especially of the working classes, is 
the spontaneous result, — capable of being defeated only by 
the ignorance or perversity of man resisting or impeding its 
action. He rejects the Malthusian doctrine of population, 
maintaining that numbers regulate themselves sufficiently in 
every well-governed society, and that their pressure on sub- 
sistence characterises the lower, not the more advanced, stages 
of civilisation. He rightly denies the universal truth, for 
all stages of cultivation, of the law of diminishing returns 
from land. His fundamental theoretic position relates to the 
antithesis of wealth and value. 

Wealth had been by most economists confounded with the 
sum of exchange values ; even Smith, though at first distin- 
guishing them, afterwards allow^ed himself to fall into this 
error. Ricardo had, indeed, pointed out the difi'erence, but 
only towards the end of his treatise, in the body of which value 
alone is considered. The later English economists had tended 
to regard their studies as conversant only with exchange ; so 
far had this proceeded that Whately had proposed for the 
science the name of Catallactics. When wealth is considered 
as what it really is, the sura of useful products, we see that 
it has its origin in external nature as supplying both materials 
and physical forces, and in human labour as appropriating and 
adapting those natural materials and forces. Nature gives 
her assistance gratuitously ; labour is the sole foundation 
of value. The less we can appropriate and employ natural 
forces in any production tlie higher the value of the product, 
but the less the addition to our wealth in proportion to the 
labour expended. Wealth, in its true sense of the sum of 
useful things, is the measure of the power we have acquired 



SYSTEM OF NATURAL LIBERTY. 173 

over nature, whilst the value of an object expresses the 
resistance of nature which labour has to overcome in order 
to produce the object. "Wealth steadily increases in the 
course of social progress ; the exchange value of objects, on 
the other hand, decreases. Human intellect and faculty of 
social combination secure increased command over natural 
powers, and use them more largely in production, whilst less 
labour is spent in achieving each result, and the value of the 
product accordingly falls. The value of the article is not fixed 
by its cost of production in the past ; what really determines 
it is the cost which is necessary for its reproduction under the 
present conditions of knowledge and skill. The dependence 
of value on cost, so interpreted, Carey holds to be universally 
true ; whilst Kicardo maintained it only with respect to objects 
capable of indefinite multiplication, and in particular did not 
regard it as applicable to the case of land. Ricardo saw in 
the productive powers of land, a free gift of nature which had 
been monopolised by a certain number of persons, and which 
became, with the increased demand for food, a larger and 
larger value in the hands of its })ossessors. To this value, 
however, as not being the result of labour, the owner, it might 
be maintained, had no rightful claim ; he could not justly 
demand a payment for what was done by the " original and 
indestructible powers of the soil." But Carey held that land, 
as we are concerned with it in industrial life, is really an 
instrument of production which has been formed as such by 
man, and that its value is due to the labour expended on it 
in the past, — though measured, not by the sum of that labour, 
but by the labour necessary under existing conditions to bring 
new land to the same stage of productiveness. He studies 
the occupation and reclamation of land with peculiar advantage 
as an American, for whom the traditions of first settlement 
are living and fresh, and before whose eyes the process is 
indeed still going on. The difficulties of adapting a primitive 
soil to the work of yielding organic products for man's use 
can be lightly estimated only by an inhabitant of a country 



174 POLITICAL ECONOMY. 

long under cultivation. It is, in Carey's view, the overcoming 
of these difficulties by arduous and continued effort that entitles 
the first occupier of land to his property in the soiL Its pre- 
sent vakie forms a very small proportion of the cost expended 
on it, because it represents only what would be required, with 
the science and appliances of our time, to bring the land 
from its primitive into its present state. Property in land is 
therefore only a form of invested capital — a quantity of labour 
or the fruits of labour permanently incorporated with the soil ; 
for which, like any other capitalist, the owner is compensated 
by a share of the produce. He is not rewarded for what is 
done by the powers of nature, and society is in no sense 
defrauded by his sole possession. The so-called Eicardian 
theory of rent is a speculative fancy, contradicted by all 
experience. Cultivation does not in fact, as that theory 
supposes, begin with the best, and move downwards to the 
poorer soils in the order of their inferiority.^ The light and 
dry higher lands are first cultivated ; and only when popula- 
tion has become dense and capital has accumulated, are the 
low-lying lands, with their greater fertility, but also with their 
morasses, inundations, and miasmas, attacked and brought into 
occupation. Kent, regarded as a proportion of the produce, 
sinks, like all interest on capital, in process of time, but, as an 
absolute amount, increases. The share of the labourer increases, 
both as a proportion and an absolute amount. And thus the 
interests of these different social classes are in harmony. 

But, Carey proceeds to say, in order that this harmonious 
progress may be realised, what is taken from the land must 
be given back to it. All the articles derived from it are 
really separated parts of it, which must be restored on pain of 
its exhaustion. Hence the producer and the consumer must 
be close to each other ; the products must not be exported to 
a foreign country in exchange for its manufactures, and thus 
go to enrich as manure a foreign soil. In immediate exchange 

^ It is, however, a mistake to suppose that the assumption of this 
hii^torical order of descent is essential to the theory in question. 



SYSTEM OF NATURAL LIBERTY. 175 

value the landowner ma}^ gain by such exportation, but the 
productive powers of the land will suffer. And thus Carey, 
who had set out as an earnest advocate of free trade, arrives 
at the doctrine of protection : ^ the "co-ordinating power'' in 
society must intervene to prevent private advantage from 
working public mischief.^ He attributes his conversion on 
the question to his observation of the effects of liberal and 
protective tariffs respectively on American prosperity. This 
observation, he says, threw him back on tlieoiy, and led him 
to see that the intervention referred to might be necessary 
to remove (as he phrases it) the obstacles to the progress 
of younger communities created by the action of older and 
wealthier nations. But it seems probable that the influence 
of List's writings, added to his own deep-rooted and hereditary 
jealousy and dislike of English predominance, had something 
to do with his change of attitude. 

The practical conclusion at which he thus arrived, though 
it is by no means in contradiction to the doctrine of the 
existence of natural economic laws, accords but ill with his 
optimistic scheme ; and another economist, accepting his funda- 
mental ideas, applied himself to remove the foreign accretion, 
as he regarded it, and to preach the theory of spontaneous 
social harmonies in relation with the practice of free trade as 
its legitimate outcome.^ 

FRA^'CE — (Continued). 
FrMeric Bastiat (1801-1850), though not a profound 

1 This argument seems scarcely met by Professor Y. A. Walker, Political 
Economy, 50-52. But perhaps he is right in thinking that Carey exagge- 
rates the importance of the considerations on which it is founded. Mill 
and Leslie remark that the transportation of agricultural products from 
the western to the Atlantic States has the same effect as their export to 
Europe, so far as this so-called " Ian d- butchery ' is concerned; besides, 
some manures are obtainable from abroad. 

^ Other writings of Carey's besides his Social Science are his Essay on 
the Rate of Wages (1835) '■> Principles of Political Economy (1838- 1840) ; 
Pastf Present, and Future (1848) ; Unity of Law (1872). 



176 POLITICAL ECONOMY. 

thinker, was a brilliant and popular writer on econcmic ques* 
tions. Tliongli he always had an inclination for such studies, 
he was first impelled to the active propagation of his views 
by his earnest sympathy with the English anti-corn-law agita- 
tion. Naturally of an ardent temperament, he threw himself 
with zeal into the free-trade controversy, through which he 
hoped to influence French economic policy, and published in 
1845 ^ history of the struggle under the title of Cohden et 
la Ligue. In 1845-48 appeared his Sophismes ^conomiques 
(Eng. trans, by P. J. Stirling, 1873), i^ which he exhibited 
his best qualities of mind. Though Cairnes goes too far in 
comparing this work with the Lettres Provinciales, it is cer- 
tainly marked by much liveliness, point, and vigour. But to 
expose the absurdities of the ordinary protectionism was no 
difficult task ; it is only in such a form as the policy assumed 
in the scheme of List, as purely provisional and preparatory, 
that it deserves and demands consideration. After the revolu- 
tion of 1848, which for a time put an end to the free-trade 
movement in France, the efforts of Bastiat were directed 
against the socialists. Besides several minor pieces possessing 
the same sort of merit as the Sophismes^ he produced, with 
a view to this controversy, his most ambitious as well as 
characteristic work, the Harmonies iJconomiques (Eng. trans, 
by P. J. Stirling, i860). Only the first volume was published; 
it appeared in 1850, and its author died in the same year. 
Since then the notes and sketches which he had prepared as 
materials towards the production of the second volume have 
been given to the public in the collected edition of his 
writings (by Paillottet, with Life by Fontenay, 7 vols.), and 
we can thus gather what would have been the spirit and 
substance of the later portions of the book. 

It will always be historically interesting as the last incar- 
nation of thorough-going economic optimism. This optimism, 
recurring to its first origin, sets out from theological considera- 
tions, and Bastiat is commended by his English translator for 
treating political economy "in connection with final causes." 



SYSTEM OF NATURAL LIBERTY. 177 

The spirit of the work is to represent "all principles, all 
motives, all springs of action, all interests, as co-operating 
towards a grand final result which humanity will never reach, 
but to which it will always increasiiigly tend, namely, the 
indefinite approximation of all classes towards a level, which 
steadily rises, — in other words, the equalisation of individuals 
in the general amelioration." 

What claimed to be novel and peculiar in his scheme was 
principally his theory of value. Insisting on the idea that 
value does not denote anything inherent in the objects to 
which it is attributed, he endeavoured to show that it never 
signifies anything but the ratio of two " services.'' This view 
he develops with great variety and felicity of illustration. 
Only the mutual services of human beings, according to him, 
possess value and can claim a retribution ; the assistance given 
by nature to the work of production is always purely gratui- 
tous, and never enters into price. Economic progress, as, for 
example, the improvement and larger use of machinery, tends 
perpetually to transfer more and more of the elements of 
utility from the domain of property, and therefore of value, 
into that of community, or of universal and unpurchased 
enjoyment. It will be observed that this theory is substantia 
ally identical with Carey's, which had been earlier propounded; 
and the latter author in so many words alleges it to have been 
taken from him without acknowledgment. It has not perhaps 
been sufficiently attended to that very similar views are found 
in Dunoyer, of whose work Bastiat spoke as exercising a 
powerful influence on " the restoration of the science," and 
whom Fontenay, the biographer of Bastiat, tells us he recog- 
nised as one of his m isters, Charles Comte ^ being the other. 

The mode which has just been explained of conceiving 
industrial action and industrial progress is interesting and 

^ Charles Coirte (1782-1837) was son-in-law of J. B. Say. He was 
associated with Dunoyer in his political writings and, like him, distin- 
guished for his honourable independence. He was author of the TraiU 
de Leyidation^ a meritorious and useful, but not a profound work. 

M 



178 POLITICAL ECONOMY. 

instructive so far as it is reall}^ applicable, but it was unduly 
generalised. Cairnes has well pointed out that Bastiat's 
theoretic soundness was injuriously affected by his habit of 
studying doctrines with a direct view to contemporary social 
and political controversies. He ^vas thus predisposed to 
accept views which appeared to lend a sanction to legitimate 
and valuable institutions, and to reject those which seemed to 
him to lead to dangerous consequences. His constant aim 
is, as he hiuiself expressed it, to "break the weapons'' of 
anti-social reasoners '*in their hands,'' and this preoccupation 
interferes with the single-minded effort towards the attainment 
of scientific truth. The creation or adoption of his theory of 
value was inspired by the wish to meet the socialistic criticism 
of property in land ; for the exigencies of this controversy it 
was desirable to be able to show that nothing is ever paid for 
except personal effort. His view of rent was, therefore, so to 
speak, foreordained, though it may have been suggested, as 
indeed the editor of his posthumous fragments admits, by the 
writings of Carey. He held, with the American author, that 
rent is purely the reward of the pains and expenditure of the 
landlord or his predecessors in the process of converting the 
natural soil into d^ farm by clearing, draining, fencing, and the 
other species of permanent improvements.^ He thus gets rid 
of the (so-called) Ricardian doctrine, which was accepted by 
the socialists, and by them used for the purpose of assailing 
the institution of landed property, or, at least, of supporting a 
claim of compensation to the community for the appropriation 
of the land by the concession of the *' right to labour." As 
Cairnes has said,^ " what Eastiat did was this : having been 
at infinite pains to exclude gratuitous gifts of nature from the 
possible elements of value, and pointedly identified'' [rather, 
associated] "the phenomenon with * human ejffort ' as its 

^ M. Leroj^-Beaulieu maintains (Esmi snr la Repartition des Hichesses, 
2d ed., 1882) that this, though not strictly, is approximately true — that 
economic forms a very small part of actual rent. 

^ Essays in Political Economy, p. 334. 



SYSTEM OF NATURAL LIBERTY. 179 

exclusive source, he designates human effort by the term 
* service/ and then emphoys this term to admit as sources of 
vaUie those very gratuitous natural gifts the exclusion of 
Avhicli in this capacity constituted the essence of his doctrine/' 
The justice of this criticism will be apparent to any one who 
considers the way in which Eastiat treats the question of the 
value of a diamond. That what is paid for in most cases of 
human dealings is effort no one can dispute. But it is surely 
a reductio ad ahsurdum of his theory of value, regarded as a 
doctrine of universal application, to represent the price of a 
diamond which has been accidentally found as remuneration 
for the effort of the finder in appropriating and transmitting 
it. And, with respect to land, whilst a large part of rent, in 
the popular sense, must be explained as interest on capital, 
it is plain that the native powers of the soil are capable of 
appropriation, and that then a price can be demanded and will 
be paid for their use. 

Bastiat is weak on the philosophical side ; he is filled with 
the ideas of theological teleology, and is led by these ideas to 
form a priori opinions of what existing facts and laws must 
necessarily be. And i\\QJus naturce, which, like metaphysical 
ideas generally, has its root in theology, is as much a postu- 
late with him as with the physiocrats. Thus, in his essay 
on Free Trade^ he says :— " Exchange is a natural right like 
property. Every citizen who has created or acquired a product 
ought to have the option of either applying it immediately to 
his own use or ceding it to whosoever on the surface of the 
globe consents to give him in exchange the object of his 
desires.'^ Something of the same sort had been said by 
Turgot ; and in his tin^e this way of regarding things was 
excusable, and even provisionally useful ; but in the middle 
of the 19th century it was time that it should be seen through 
and abandoned. 

Bastiat had a real enthusiasm for a science which he thought 
destined to render great services to mankind, and he seems 
to have believed intensely the doctrines which gave a special 



i8o POLITICAL ECONOMY. 

colour to his teaching. If his optimistic exaggerations favoured 
the propertied classes, they certainly were not prompted by 
self-interest or servility. But they are exaggerations; and, 
amidst the modern conflicts of capital and labour, his per- 
petual assertion of social harmonies is the cry of " peace, 
peace," where there is no peace. The freedom of industry, 
which he treated as a panacea, has undoubtedly brought with 
it great benefits ; but a sufflcient experience has shown that 
it is inadequate to solve the social problem. How can the 
advocates of economic revolution be met by assuring them 
that everything in the natural economy is harmonious — that, 
in fact, all they seek for already exists 1 A certain degree of 
spontaneous harmony does indeed exist, for society could not 
continue without it, but it is imperfect and precarious ; the 
question is, How can we give to it the maximum of complete- 
ness and stability ? 

Augustin Cournot (i 801-187 7) appears to have been the 
first ^ who, with a competent knowledge of both subjects, en- 
deavoured to apply mathematics to the treatment of economic 
questions. His treatise entitled Becherches sur les Principes 
MafJiematiques de la Theorie des Eichesses was published in 
1838. He mentions in it only one previous enterprise of the 
same kind (though there had in fact been others) — that, 
namely, of Nicolas Frangois Canard, whose book, published 
in 1802, was crowned by the Institute, though "its principles 
were radically false as well as erroneously applied." Not- 
withstanding Cournot's just reputation as a writer on mathe- 
matics, the EecJierches made little impression. The truth 
seems to be that his results are in some cases of little import- 
ance, in others of questionable correctness, and that, in the 
abstractions to which he has recourse in order to facilitate his 
calculations, an essential part of the real conditions of the 
problem is sometimes omitted. His pages abound in sjmibols 

1 Hermann Heinrich Gossen's work, Entwickelung der Gesetze dei 
menschlichen Verkehrs, so highly praised by Jevons, Theory of Pol, £con,, 
2d ed., Pref., was published in 1854. 



SYSTEM OF NATURAL LIBERTY. i8i 

representing unknown functions, the form of the function 
being left to be ascertained by observation of facts, which he 
does not regard as a part of liis task, or only some known 
properties of the undetermined function being used as bases 
for deduction. Jevons includes in his list of works in which 
a mathematical treatment of economics is adopted a second 
treatise which Cournot published in 1863, with the title 
Princi;pes de la Theorie des Richesses. But in reality, in the 
work so named, which is written with great ability, and con- 
tains much forcible reasoning in opposition to the exaggera- 
tions of the ordinary economists, the mathematical method is 
abandoned, and there is not an algebraical formula in the book. 
The author admits that the public has always shown a repug- 
nance to the use of mathematical symbols in economic dis- 
cussion, and, though he thinks they might be of service in 
facilitating exposition, fixing the ideas, and suggesting further 
developments, he acknowledges that a grave danger attends 
tlieir use. The danger, according to him, consists in the 
probability that an undue value may be attached to the 
abstract hypotheses from which the investigator sets out, and 
which enable him to construct his formulae. And his practical 
conclusion is that mathematical processes should be employed 
only with great precaution, or even not employed at all if the 
public judgment is against them, for "this judgment,'' he 
says, " has its secret reasons, almost always more sure than 
those which determine the opinions of individuals." It is an 
obvious consideration that the acceptance of unsound or one- 
sided abstract principles as the premises of argument does not 
depend on the use of mathematical forms, though it is possible 
that the employment of the latter may by association produce 
an illusion in favour of the certainty of those premises. But 
the great objection to the use of mathematics in economic 
reasoning is that it is necessarily sterile. If we examine the 
attempts which have been made to employ it, we shall find 
that the fundamental conceptions on which the deductions 
are ulade to rest are vague, indeed metaphysical, in their 



iS2 POLITICAL ECONOMY. 

character. Units of animal or moral satisfaction, of utility^ 
and the like, are as foreign to positive science as a unit of 
dorniitive faculty Avould be; and a unit of value, unless we 
understand by value the quantity of one commodity e^cha^ige- 
able under given conditions for another, is an equally indefinite 
idea. Mathematics can indeed formulate ratios of exchange 
when they have once been observed ; but it cannot by any 
process of its own determine those ratios, for quantitative 
conclusions imply quantitative premises, and these are want- 
ing. There is then no future for this kind of study, and it 
is only waste of intellectual power to pursue it. Eut the im- 
portance of mathematics as an educational introduction to ali 
the higher orders of research is not affected by this conclusion. 
The study of the physical medium, or environment, in which 
economic phenomena take place, and by which they are 
affected, requires mathematics as an instrument ; and nothing 
can ever dispense with the didactic efficacy of that science, 
as supplying the primordial type of rational investigation, 
giving the lively sentiment of decisive proof, and disinclining 
the mind to illusory conceptions and sophistical combinations. 
And a knowledge of at least the fundamental principles of 
mathematics is necessary to economists to keep them right in 
their statements of doctrine, and prevent their enunciating 
propositions which have no definite meaning. Even dis- 
tinguished writers sometimes betray a serious deficiency in 
tills respect; thus they assert that one quantity "varies in- 
versely as *' another, when what is meant is that the sum 
(not the product) of the two is constant; and they treat as 
capable of numerical estimation the amount of an aggregate 
of elements which, differing in kind, cannot be reduced to a 
common standard. As an example of the latter error, it may 
be mentioned that " quantity of labour,*' so often spoken of 
by Eicardo, and in fact made the basis of his system, includes 
such various species of exertion as will not admit of summa- 
tion or comparison. 



system of natural liberty. 183 

Italy. 

The first Italian translation of the Wealth of Natiom 
appeared in 1780. The most distinguished Italian economist 
of the period here dealt with was, however, no disciple of 
Smith. This was Melchiorre Gioja, author, besides statisti- 
cal and other writings, of a voluminous work entitleil Nuovo 
Prospetto delle SrAenze Economiche (6 vols., 181 5-1 7; the 
w^ork was never completed), intended to be an encyclopaedia 
of all that had been taught by theorists, enacted by Govern- 
ments, or effected by populations in the field of public and 
private economy. It is a learned and able treatise, but so 
overladen with quotations and tables as to repel rather than 
attract readers. Gioja admired the practical economic system 
of England, and enlarges on the advantages of territorial proper- 
ties, manufactures, and mercantile enterprises on the large as 
opposed to the small scale. He defends a restrictive policy, 
and insists on the necessity of the action of the state as a 
guiding, supervising, and regulating power in the industrial 
world. Eut he is in full sympathy Avith the sentiment of his 
age against ecclesiastical domination and other mediseval 
survivals. We can but very briefly notice Komagnosi (d. 
1835), who, by his contributions to periodical literature, and 
by his personal teaching, greatly influenced the course of 
economic thought in Italy ; Antonio Scialoja (Principli 
cVEconomia Sociale, 1840 ; and Carestia e Governo, 1853), 
an able advocate of free trade (d. 1877); Luigi Cibrario, well 
known as the author of Economia Politica del medio evo 
(1839; 5th ed., ]86i : French trans, by Barneaud, 1859), 
which is in fact a view of the wdiole social system of that 
period; Girolamo Boccardo (b. 1829; Trattato Teorico-pratico 
di Economia Politica, 1853); the brilliant controversialist 
Francesco Ferrara, professor at Turin from 1849 ^^ ^^5^ (^^^ 
whose school most of the present Italian teachers of the science 
were, directly or indirectly, educated), a partisan of the laisser 
faire doctrine in its most extreme form, and an advocate of 



i84 POLITICAL ECONOMY. 

the peculiar opinions of Carey and Bastiat on the subject of 
rent ; and, lastly, the [N'eapolitan minister Ludovico Eianchini 
{Pri7ici2ni della Scienza del Ben Vivere Sociale, 1845 ^^^ ^^55)) 
wlio is remarkable as having followed in some degree an 
historical direction, and asserted the principle of relativity, 
and who also dwelt on the relations of economics with morals, 
by a due attention to which the Italian economists have, 
indeed, in general been honourably distinguished. 

Spain. 

The Wealth of Nations was translated into Spanish by 
Ortiz in 1794. It may perhaps have influenced Gaspar de 
Jovellano?:, who in 1795 presented to the council of Castile 
and printed in the same year liis celebrated Informe de la 
Sociedad Economica de Madrid en expediente de Ley Agraria, 
which was a powerful plea for reform, especially in taxation 
and tlie laws affecting agriculture, including those relating to 
the systems of entail and mortmain. An English version of 
this memoir is given in the translation (1809) of Laborde's 
Spain, vol. iv. 

Germany. 

Eoscher observes that Smith did not at first produce much 
impression in Germany.^ He does not appear to have been 
known to Frederick the Great ; he certainly exercised no in- 
fluence on him. Nor did Joseph II. take notice of his work. 
And of the minor German princes, Karl Friedrich of Baden, 
as a physiocrat, would not be accessible to his doctrines. It 
was otherwise in the generation whose principal activity be- 
longs to the first decade of the 19th century. The Prussian 
statesmen who were grouped round Stein had been formed as 

^ The first German version of the Wealth of Nations was that by Johann 
Friedrich Schiller, published 1776-78. The second, which is the first 
good one, was by Christian Garve (1794, and again 1799 ^^d 1810). A 
kter one by C. W. Asher (i 861) is highly commended. 



SYSTEM OF NATURAL LIBERTY. 185 

economists by Smith, as had also Gentz, intellectually the 
most important man of the Metternich regime in Austria. 

The first German expositors of Smith who did more than 
merely reproduce his opinions were Christian Jacob Kraus 
(1753-1807), Georg Sartorius (1766-1828), and August Ferdi- 
nand Liider (17 60-181 9). They contributed independent views 
from different standpoints, — the first from that of the effect 
of Smith's doctrine on practical government, the second from 
that of its bearing on history, the third from that of its rela- 
tion to statistics. Somewhat later came Gottlieb Hufeland 
(17 60-1 8 1 7), Johann Friedrich Eusebius Lotz (i 771-1838,) 
and Ludwig Heinrich von Jakob (1759-1827), who, whilst 
essentially of the school of Smith, apply themselves to a re- 
vision of the fundamental conceptions of the science. These 
authors did not exert anything like the wide influence of 
Say, partly on account of the less attractive form of their 
writings, but chiefly because Germany had not then, like 
France, a European audience. Julius von Soden (i 754-1 831) 
is largely founded on Smith, whom, however, he criticises 
with undue severity, especially in regard to his form and 
arrangement ; the Wealth of Nations he describes as a series 
of precious fragments, and censures Smith for the absence of 
a comprehensive view of his whole subject, and also as one- 
sidedly English in his tendencies. 

The highest form of the Smithian doctrine in Germany 
is represented by four distinguished names : — Karl Heinrich 
Eau (1792-18 7o\ Friedrich Xebenius (i 784-1857), Friedrich 
Benedict Wilhelm Hermann (i 795-1868), and Johann Hein- 
rich von Thiinen (i 783-1 850). 

Eau's characteristic is " erudite thoroughness." His Lehr- 
buch (1826-32) is an encyclopaedia of all that up to bis time 
had appeared in Germany under the several heads of Volks- 
wirthschaftslehrej Volksivirthschaftspolitik, and Finanzwissen- 
scliaft. His book is rich in statistical observations, and is 
particularly instructive on the economic effects of different 
geographical conditions. It is well adapted for the teaching 



i86 POLITICAL ECONOMY. 

of public servants whose duties are connected with economics, 
and it has in fact been the source from which the German 
official world down to the present time has derived its know- 
ledge of the science. In his earlier period Eau had insisted on 
the necessity of a reform of economic doctrine {Ansiclden der 
Volksmirthi^chaft, 1821), and had tended towards relativity 
and the historical method ; but he afterwards conceived the 
mistaken notion that that method " only looked into the past 
without studying the means of improving the present," and 
became himself purely practical in the narrower sense of that 
word. He has the merit of having given a separate treat- 
ment of Uiiternelimergewinn, or " wages of management/' The 
Prussian minister Nebenius, who was largely instrumental 
in the foundation of the Zollverein, was author of a highly 
esteemed monograph on public credit (1820). The Staats- 
ivirthschaftlicJie UntersucJtwic/en (1832 ; 2d ed., 1870) of 
Hermann do not form a regular system, but treat a series of 
important special subjects. His rare technological knowledge 
gave him a great advantage in dealing with some economic 
questions. He reviewed the principal fundamental ideas of 
the science with great thoroughness and acubeness. " His 
strength," says Koscher, "lies in his clear, sharp, exhau-^tive 
distinction between the several elements of a complex con- 
ception, or the several steps comprehended in a complex act." 
For keen analytical power his German brethren compare him 
with Eicardo. But he avoids several onesided views of 
the English economist. Thus he places public spirit beside 
egoism as an economic motor, regards price as not measured 
by labour only but as a product of several factors, and habi- 
tually contemplates the consumption of the labourer, not as 
a part of the cost of production to the capitalist, but as tha 
main practical end of economics. Yon Thlinen is known 
principally by his remarkable work entitled Der IsoUrte Staat 
in Beziehung auf Landwirtlischaft iind Nationalokonomie 
(1826; 2d ed., 1842). In this treatise, which is a classic^ in 
the political economy of agriculture, there is a rare union of 



SYSTEM OF NATURAL LIBERTY. 187 

exact observation with creative imagination. With a view to 
exhibit the natural development of agriculture, he imagines 
a state, isolated from the rest of the world, circular in form 
and of uniform fertility, without navigable rivers or canals, with 
a single large city at its centre, which supplies it with manu- 
factures and receives in exchange for them its food-products, 
and proceeds to study tlie effect of distance from this central 
market on the agricultural economy of the several concentric 
spaces which compose the territor3\ The method, it will 
be seen, is highly abstract, but, though it may not be fruit- 
ful, it is quite legitimate. The author is under no illusion 
blinding him to the unreality of the hypothetic case. The 
supposition is necessary, in his view, in order to separate 
and consider apart one essential condition — that, namely, of 
situation with respect to the market. It was his intention 
(imperfectly realised, however) to institute afterwards several 
different hypotheses in relation to his isolated state, for the 
purpose of similarly studying other conditions which in real 
life are found in combination or conflict. The objection to 
this method lies in the difficulty of the return from the 
abstract study to the actual facts ; and this is probably an 
insuperable one in regard to most of its applications. The 
investigation, however, leads to trustworthy conclusions as 
to the conditions of the succession of different systems of land 
economy. The book abounds in calculations relating to agri- 
cultural expenditure and income, which diminish its interest 
to the general reader, though they are considered valuable to 
the specialist. They embody the results of the practical ex- 
perience of the author on his estate of Tellow in Mecklenburg- 
Schwerin. Yon Thiinen was strongly impressed with the 
danger of a violent conflict between the middle class and the 
proletariate, and studied earnestly the question of wages, 
which he was one of the first to regard habitually, not merely 
as the price of the commodity labour, but as the means of 
subsistence of the mass of the community. He arrived by 
mathematical reasonings of some complexity at a formula 



188 POLITICAL ECONOMY. 

which expresses the amount of " natural wages " as = >Japy 
where a is the necessary expenditure of the labourer for 
subsistence, and p is the product of his labour. To this 
formula he attributed so much importance that he directed it 
to be engraved on his tomb. It implies that wages ought to 
rise with the amount of the product ; and this conclusion 
led him to establish on his estate a system of participation by 
the labourers in the profits of farming, of which some account 
will be found in Mr. Sedley Taylor's Profit-sharing between 
Capital and Labour (1884). Yon Thunen deserves more 
attention than he has received in England; both as a man 
and as a writer he was eminently interesting and original : and 
there is much in Der Isoltrte Staat and his other works that 
is awakening and suggestive, 

Eoscher recognises what he calls a Germano-Eussian 
(deutsch-russische) school of political economy, represented 
principally by Heinrich Storch (i 766-1825). Mercantilist 
principles had been preached by a native ('* autochthonen ") 
economist, Ivan Possoschkoff, in the time of Peter the Great. 
The new ideas of the Smithian system were introduced into 
Eussia by Christian Yon Schlozer (i 774-1831) in his pro- 
fessorial lectures and in his Anfangsgrunde der Staatswaih' 
schaft, Oder die LeJire von JS^ational-reiclitliume (i 805-1 807). 
Storch was instructor in economic science of the future 
emperor Nicholas and his brother the grand-duke Michael, 
and the substance of his lessons to them is contained in his 
Cours d'iJconomie Folitique (18 15). The translation of this 
treatise into Eiissian was prevented by the censorship ; Eau 
published a German version of it, with annotations, in 1819. 
It is a work of a very high order of merit. The epithet 
^' deutsch-russisch " seems little applicable to Storch ; as 
Eoscher himself says, he follows mainly English and French 
writers — Say, Sismondi, Turgot, Bentham, Steuart, and Hume, 
but, above all, Adam Smith. His personal position (and the 
same is true of Schlozer) led him to consider economic 
doctrines in connection with a staple of culture different from 



SYSTEM OF NATURAL LIBERTY. 189 

that of the Western populations amongst which they had 
"been formulated ; this chanp^e of the point of view opened the 
door to relativity, and helped to prepare the Historical method. 
Storch's study of the economic and moral effects of serfdom 
is regarded as especially valuable. The general subjects with 
which he has particularly connected his name are (i) the 
doctrine of immaterial commodities (or elements of national 
prosperity), such as health, talent, morality, and the like ; 
(2) the question of *' productive " and '* unproductive," as 
characters of labour and of consumption, on which he dis- 
agreed wuth Smith and may have furnished in^iications to 
Dunoyer; and (3) the differences between the revenue of 
nations and that of individuals, on which he follows Lauder- 
dale and is opposed to Say. The latter economist having 
published at Paris (1823) a new edition of Storch's Coicrs, 
with criticisms sometimes offensive in tone, he published by 
way of reply to some of Say's strictures what is considered 
his lipest and scientifically most important work. Considera- 
tions sur la nature du Revenu National (1824 ; translated into 
German by the author himself, 1825). 

A distinct note of opposition to the Smithian economics was 
sounded in Germany by two writers, who, setting out from 
, somewhat different points of view, animated by different 
sentiments, and favouring different practical systems, yet, so 
far as their criticisms are concerned, arrive at similar con- 
clusions ; we miean Adam Miiller and Friedrich List. 

Adam Miiller (i 779-1829) was undoubtedly a man of real 
genius. In his principal work FAemente der Staatskunst 
(1809), and his other writings, he represents a movement of 
economic thought which was in relation with the (so-called) 
Romantic literature of the period. The reaction against 
Smithianism of which he was the coryphaeus w^as founded 
on an attachment to the principles and social system of the 
Middle Ages. It is possible that the political and historical 
ideas which inspire him, his repugnance to contemporary 
liberalism, and his notions of regular organic development, 



IQO POLITICAL ECONOMY. 

especially in relation to England, were in some degree imbibed 
from Edmund Burke, whose Reflections on the Revolution in 
France had been translated into German by Friedrich Gentz, 
the friend and teacher of Miiller. The association of his 
criticisms with mediaeval prepossessions ought not to prevent 
our recognising the elements of truth which they contain. 

He protests against the doctrine of Smith and against 
modern political economy in general on the ground that it 
presents a mechanical, atomistic, and purely material con- 
ception of society, that it reduces to nullity all moral forces 
and ignores the necessity of a moral order, that it is at bottom 
no more than a theory of private property and private interests, 
and takes no account of the life of the people as a whole in 
its national solidarity and historical continuity. Exclusive 
attention, he complains, is devoted to the immediate production 
of objects possessing exchange value and to the transitory 
existence of individuals ; wliilst to the maintenance of the 
collective production for future generations, to intellectual 
products, powers, possessions, and enjoyments, and to the 
State with its higher tasks and aims, scarcely a thought is 
given. The truth is that nations are specialised organisms 
with distinct principles of life, having definite individualities 
which determine the course of their historical development. 
Each is through all time one whole ; and, as the present is 
the heir of the past, it ought to keep before it constantly the 
permanent good of the community in tlie future. The eco- 
nomic existence of a people is only one side or province of 
its entire activity, requiring to be kept in harmony with the 
higher ends of society ; and the proper organ to effect this 
reconciliation is the State, which, instead of being merely an 
apparatus for the administration of justice, represents the 
totality of the national life. The division of labour, Miiller 
holds, is imperfectly developed by Smith, who makes it to 
arise out of a native bent for truck or barter ; whilst its 
dependence on capital — on the labours and accumulations of 
past generations — is not duly emphasised, nor is the necessary 



SYSTEM OF NATURAL LIBERTY. 191 

counterpoise and cornpletion of the division of labour, in 
the principle of the national comhination of labour, properly 
brought out. Siuiih recognises only material, not spiritual, 
capital ; yet the latter, represented in every nation by language, 
as the former by money, is a real national store of experience, 
wisdom, good sense, and moral feeling, transmitted with in- 
crease by each generation to its successor, and enables each 
generation to produce immensely more than by its own unaided 
powers it could possibly do. Again, the system of Smith 
is one-sidedly British ; if it is innocuous on the soil of 
England, it is because in her society the old foundations on 
which the spiritual and material life of the people can securely 
rest are preserved in the surviving spirit of feudalism and the 
inner connection of the whole social system — the national 
capital of laws, manners, reputation, and credit, which has 
been handed down in its integrity in consequence of the in- 
sular position of the country. For the continent of Europe 
a quite different system is necessary, in which, in place of tlie 
sum of the private wealth of individuals being viewed as the 
primary object, the real wealth of the nation and the produc- 
tion of national power shall be made to predominate, and along 
with the division of labour its national union and concentra- 
tion — along with the physical, no less the intellectual and 
moral, capital shall be embraced. In these leading traits of 
Miiller's thought there is much which foreshadows the more 
recent forms of German economic and sociological speculation, 
especially those characteristic of the " Historical'' school. 

Another element of opposition was represented by Friedrich 
List (i 798-1846), a man of great intellectual vigour as well 
as practical energy, and notable as having powerfully- contri- 
buted by his writings to the formation of the German Zull- 
verein. His principal work is entitled Das Nationale System 
der PoUtischen OeJwnomie (1841 ; 6th ed., 1877 : Eng. trans., 
1885). Though his practical conclusions were different from 
Miiller's, he was largely influenced by the general mode of 
thinking of that writer, and by his strictures on the doctrine 



192 POLITICAL ECONOMY. 

of Smith. It was particularly against the cosmopolitan prin« 
ciple in the modern economical system that he protested, and 
against the absolute doctrine of free trade, which was in 
harmony with that principle. He gave prominence to the 
National idea, and insisted on the special requirements of 
each nation according to its circumstances and especial ly to 
the degree of its development. 

He refuses to Smith's system the title of the industrial, 
which he thinks more appropriate to the mercantile system, 
and designates the former as ^' the exchange-value system." 
He denies the parallelism asserted by Smith between the eco- 
nomic conduct proper to an individual and to a nation, and 
holds that the immediate private interest of the separate 
members of the community will not lead to the highest good 
of the whole. The nation is an existence, standing between 
the individual and Humanity, and formed into a unity by its 
language, manners, historical development, culture, and con- 
stitution. This unity is the first condition of the security, 
wellbeing, progress, and civilisation of the individual ; and 
private economic interests, like all others, nmst be subordi- 
nated to the maintenance, completion, and strengthening of 
the nationality. The nation having a continuous life, its true 
wealth consists — and this is List's fundamental doctrine — not 
in the quantity of exchange-values which it possesses, but in 
the full and many-sided development of its productive powers. 
Its economic education, if we may so speak, is more important 
than the immediate production of values, and it may be right 
that the present generation should sacrifice its gain and enjoy- 
ment to secure the strength and skill of the future. In the 
sound and normal condition of a nation which has attained 
economic maturity, the three productive powers of agriculture, 
manufactures, and commerce should be alike developed. But 
the two latter factors are superior in im])ortance, as exercising 
a more effective and fruitful influence on the whole culture 
of the nation, as well as on its independence. Navigation, 
railways, all higher technical arts, connect themselves specially 



SYSTEM OF NATURAL LIBERTY. 193 

with these factors ; wliilst in a purely agricultural state tliere 
is a tendency to stagnation, absence of enterprise, and tlie niain- 
tenance of antiquated prejudices. But for the growth of the 
higher forms of industry all countries are not adapted — only 
those of the temperate zones, whilst the torrid regions have 
a natural monopoly in the production of certain raw materials ; 
and thus between these two groups of countries a division of 
labour and confederation of powers spontaneously takes place. 
List then goes on to explain his theory of the stages of econo- 
mic development through which the nations of the temperate 
zone, w^hich are furnished with all the necessary conditions, 
naturally pass, in advancing to their normal economic state. 
These are (i) pastoral life, (2) agriculture, (3) agriculture 
united with manufactures; whilst in the final stage agriculture, 
manufactures, and commerce are combined. The economic 
task of the state is to bring into existence by legislative and 
administrative action the conditions required for the progress 
of the nation through these stages. Out of this view arises 
List's scheme of industrial politics. (Every nation, according 
to him, should begin with free trade, stimulating and improv- 
ing its agriculture by intercourse with richer and more culti- 
vated nations, importing foreign manufactures and exporting 
raw products. When it is economically so far advanced that 
it can manufacture for itself, then a system of protection 
should be employed to allow the home industries to develop 
themselves fully, and save them from being overpowered in 
their earlier efforts by the competition of more matured foreign 
industries in the home market. When the national industries 
have grown strong enough no longer to dread this competi- 
tion, then the highest stage of progress has been reached ; free 
trade should again become the rule, and the nation be thus 
thoroughly incorporated with the universal industrial union."; 
In List's time, according to his view, Spain, Portugal, and 
Naples were purely agricultural countries ; Germany and the 
United States of North America had arrived at the second 
stage, their manufactures being in process of development* 

N 



194 POLITICAL ECONOMY. 

France was near the boundary of the third or highest stage, 
which England alone had reached. For England, therefore, 
as well as for the agricultural countries first-named, free trade 
was ihe right economic policy, but not for Germany or America. 
What a nation loses for a time in exchange-values during the 
protective period she much more than gains in the long run 
in productive power, — the temporary expenditure being strictly 
analogous, wh^in we place ourselves at the point of view of 
the life of the nation, to the cost of the industrial education 
of the individual. The practical conclusion which List drew 
for his own country was that she needed for her economic pro- 
gress an extended and conveniently bounded territory reaching 
to the sea-coast both on north and south, and a vigorous ex- 
pansion of manufactures and commerce, and that the way to 
the latter lay through judicious protective legislation with a 
customs union comprising all German lands, and a German 
marine with a Navigation Act. The national German spirit, 
striving after independence and power through union, and the 
national industry, awaking from its lethargy and eager to 
recover lost ground, were favourable to the success of List's 
book, and it produced a great sensation. He ably represented 
the tendencies and demands of his time in his own country ; 
his work had the effect of fixing the attention, not merely of 
the speculative and official classes, but of practical men gene- 
rally, on questions of Political Economy ; and he had without 
doubt an important influence on German industrial policy. 
So far as science is concerned, the emphasis he laid on the 
relative historical study of stages of civilisation as affecting 
economic questions, and his protest against absolute formulas, 
had a certain value ; and the preponderance given to the 
national development over the immediate gains of individuals 
was sound in principle ; though his doctrine was, both on its 
public and private sides, too much of a mere chrematistic, 
and tended in fact to set up a new form of mercantilism, 
rather than to aid the contemporary effort towards social 
reform. 



SYSTEM OF NATURAL LIBERTY. 195 

Most of the writers at home or ahroad hitherto mentioned 
continued the traditions of the scliool of Smith, only develop- 
ing his doctrine in particular directions, sometimes not Avithout 
one-sidedness or exaggeration, or correcting minor errors into 
which he had fallen, or seeking to give to tne exposition of 
his principles more of order and lucidity. Some assailed the 
ahuse of abstraction by Smith's successors, objected to the con- 
clusions of Ricardo and his followers their non-accordance with 
the actual facts of human life, or protested against the anti- 
social consequences which seemed to result from the application 
of the (so-called) orthodox formulas. A few challenged Smith's 
fundamental ideas, and insisted on the necessity of altering the 
basis of general philosophy on which his economics ultimately 
rest. But, notwithstanding various premonitory indications, 
nothing substantial, at least nothing efi'ective, w^as done, within 
the field we have as yet surveyed, towards the establishment 
of a really new order of thinking, or new mode of proceeding, 
in this branch of inquiry. Now, however, we have to describe 
a great and growing movement, which has already considerably 
changed the whole character of the study in the conceptions 
of many, and which promises to exercise a still more potent 
influence in the future. We mean the rise of the Historical 
School, which we regard as marking the third epoch in the 
modern development of economic science. 



CHAPTER VI. 

THE HISTORICAL SCHOOL. 

The negative movement which filled the eighteenth century 
had for its watchword on the economic side the liberation of 
industrial effort from both feudal survivals and Governmental 
fetters. But in all the aspects of that movement, the economic 
as well as the rest, the process of demolition was historically 
only the necessary preliminary condition of a total renova- 
tion, towards which Western Europe was energetically tending, 
though with but an indistinct conception of its precise nature. 
The disorganisation of the body of opinion which underlay the 
old system outran the progress towards the establishment of 
new principles adequate to form a guidance in the future. The 
critical philosophy which had wrought the disorganisation 
could only repeat its formulas of absolute liberty, but was 
powerless for reconstruction. And hence there was seen 
throughout the West, after the French explosion, the remark- 
able spectacle of a continuous oscillation between the tendency 
to recur to outworn ideas and a vague impulse towards a new 
order in social thought and life, this impulse often taking an 
anarchical character. 

From this state of oscillation, which has given to our 
century its equivocal and transitional aspect, the only possible 
issue was in the foundation of a scientific social doctrine which 
should supply a basis for the gradual convergence of opinion 
on human questions. The foundation of such a doctrine is the 
immortal service for which the world is indebted to Auguste 
Comte (1798-1857). 



THE HISTORICAL SCHOOL. 197 

The leading features of Sociology, as he conceived it, are 
the following: — (i) it is essentially one science, in which all 
the elements of a social state are studied in their relations and 
mutual actions ; (2) it includes a dynamical as well as a statical 
theory of society; (3) it thus eliminates the absolute, substi- 
tuting for an imagined fixity the conception of ordered change ; 
(4) its principal method, though others are not excluded, is 
that of historical comparison ; (5) it is pervaded by moral 
ideas, by notions of social duty, as opposed to the individual 
rights which were derived as corollaries from the jus naturce ; 
and (6) in its spirit and practical consequences it tends to the 
realisation of all the great ends which compose " the popular 
cause " ; yet (7) it aims at this through peaceful means, re- 
placing revolution by evolution.-^ The several characteristics 
we have enumerated are not independent ; they may be shown 
to be vitally connected with each other. Several of these 
features must now be more fully described; the others will 
meet us before the close of the present survey. 

In the masterly exposition of sociological method which is 
contained in the fourth volume of the Philosophie Positive 
(1839),^ Comte marks out the broad division between social 
statics and social dynamics — the former studying the laws of 
social coexistence, the latter those of social development. The 
fundamental principle of the former is the general consensus 

^ It would be a grave error to suppose that the subjection of social 
phenomena to natural laws aifords any encouragement to a spirit of fatal- 
istic quietism. On the contrary, it is the existence of such laws that is 
the necessary basis of all systematic action for the improvement either 
of our condition or of our nature, as may be seen by considering the 
parallel case of hygienic and therapeutic agencies. And, since the dif- 
ferent orders of phenomena are more modifiable in proportion to their 
greater complexity, the social field admits of more extensive and effica- 
cious human intervention than the inorganic or vital domain. In rela- 
tion to the dynamical side of Sociology, whilst the direction and essential 
character of the evolution are predetermined, its rate and secondary 
features are capable of modification. 

'^ He had already in 1822 stated his fundamental principles in an 
opuscule which is reproduced in the Appendix to his Politique Positive, 



igS POLITICAL ECONOMY. 

between the several social organs and functions, which, without 
unduly pressing a useful analogy, we may regard as resembling 
that which exists between the several organs and functions of 
an animal body. The study of dynamical is different from, 
and necessarily subordinated to, that of statical sociology, pro- 
gress being in fact the development of order, just as the study 
of evolution in biology is different from, and subordinated to, 
that of the structures and functions which are exhibited by 
evolution as they exist at the several points of an ascending 
scale. The laws of social coexistence and movement are as 
much subjects for observation as the corresponding phenomena 
in the life of an individual organism. For the study of 
development in particular, a modification of the comparative 
method familiar to biologists will be the appropriate mode of 
research. The several successive stages of sogiety will liave 
to be systematically compared, in order to discover their laws 
of sequence, and to determine the filiation of their charac- 
teristic features. 

Though we must take care that both in our statical and 
dynamical studies we do not ignore or contradict the funda- 
mental properties of human nature, the project of deducing 
either species of laws from those properties independently 
of direct observation is one which cannot -be realised. 
Neither the general structure of human society nor the 
march of its development could be so predicted. This is 
especially evident with respect to dynamical laws, because, in 
the passage of society from one phase to another, the pre- 
ponderating agency is the accumulated influence of past 
g:merations, which is much too complex to be investigated 
deductively — a conclusion which it is important to keep 
steadily before us now that some of the (so-called) anthro- 
pologists are seeking to make the science of society a mere 
annex and derivative of biology. The principles of biology 
unquestionably lie at the foundation of the social science, but 
the latter has, and must always have, a field of research and 
a method of inquiry peculiar to itself. The field is history in 



THE HISTORICAL SCHOOL. 199 

the largest sense, including contemporaiy fact; and the prin- 
cipal, though not exclusive, method is, as we have said, that 
process of sociological comparison which is most conveniently 
called 'Hhe historical method." 

These general principles aifect the economic no less than 
other branches of social speculation ; and Avith respect to that 
department of inquiry they lead to important results. They 
show that the idea of forming a true theory of the economic 
frame and working of society apart from its other sides is 
illusory. Such study is indeed provisionally indispensable, 
but no rational theory of the economic organs and functions 
of society can be constructed if they are considered as isolated 
from the rest. In other words, a separate economic science 
is, strictly speaking, an impossibility, as representing only 
one portion of a complex organism, all whose parts and their 
actions are in a constant relation of correspondence and 
reciprocal modification. Hence, too, it will follow that, 
whatever useful indications may be derived from our general 
knowledg<i of individual human nature, the economic structure 
of society and its mode of development cannot be deductively 
foreseen, but must be ascertained by direct historical investi- 
gation. We have said "its mode of development"; for it is 
obvious that,' as of every social element, so of the economic 
factor in human atTairs, there must be a dynamical doctrine, 
a theory of the successive phases of the economic condition ot 
society ; yet in the accepted systems this was a desideratum, 
nothing but some partial and fragmentary notions on this 
whole side of the subject being yet extant.^ And, further, 
the economic structure and working of one historic stage 
being diiferent from those of another, we must abandon the 
idea of an absolute system possessing universal validity, and 
substitute that of a series of such systems, in which, however, 

1 Under the influence of these views of Comte, J. S. Mill attempted 
in Book IV. of his Political Economy a treatment of Economic Dynamics ; 
but that appears to us one of the least satisfactory portions of hia 
work. 



200 POLITICAL ECONOMY. 

the succession is not at all arbitrary, but is itself regulated 
by law. 

Though Comte's enterprise was a constructive one, his aim 
being tlie foundation of a scientific theory of society, he could 
Hot avoid criticising the labours of those who before him had 
treated several branches of social inquiry. Amongst them the 
nnononiists were necessarily considered ; and he urged or im- 
plied, in various places of his above-named work, as well as 
of his Politique Positive, objections to their general ideas and 
methods of procedure essentially the same with those which 
we stated in speaking of Ricardo and his followers. J. S. 
Mill shows himself much irritated by these comments, and 
remarks on them as showing 'Miow extremely superficial M, 
Comte " (whom he yet regards as a thinker quite comparable 
with Descartes and Leibnitz) " could sometimes be," — an un- 
fortunate observation, which he would scarcely have made 
if he could have foreseen the subsequent march of Euro- 
pean thought, and the large degree in which the main points 
of Comte's criticism have been accepted or independently 
reproduced. 

Ger]\iany. 

The second manifestation of this new movement in economic 
science was the appearance of the German historical school. 
The views of this school do not appear to have arisen, like 
Comte's theory of sociological method, out of general philo- 
sophic ideas ; they seem rather to have been suggested by an 
extension to the economic field of the conceptions of the his- 
torical school of jurisprudence of which Savigny was the most 
eminent representative. The juristic system is not a fixed 
social phenomenon, but is variable from one stage' in the 
progress of society to another ; it is in vital relation with 
the other coexistent social factors ; and what is, in the jural 
sphere, adapted to one period of development, is often unfit 
for another. These ideas were seen to be applicable to the 



THE HISTORICAL SCHOOL. 201 

economic system also ; the relative point of view was thus 
reached, and the ahsolute attitude was found to he untenable. 
Cosmopolitanism in theory, or the assumption of a system 
equally true of every country, and what has been called per- 
petualism, or the assumption of a system applicable to every 
social stage, were alike discredited. And so the German 
historical school appears to have taken its rise. 

{Omitting preparatory indications and undeveloped germs 
of doctrine, w^e must trace the origin of the school to Wilhelm 
Roscher.) Its fundamental principles are stated, tliough with 
some hesitation, and with an unfortunate contrast of the his- 
torical with the "philosophical" method,^ in his Grundriss 
zu Vorle-^ungen uher die Staatswirthschaft nach geschichtlicher 
Methode (1843). The following are the leading heads in- 
sisted on in the preface to that work. 

** The liistorical metliod exhibits itself not merely in the 
external form of a treatment of phenomena according to their 
chronological succession, but in the following fundamental 
ideas, (i.) The aim is to represent what nations have tliought, 
willed, and discovered in the economic field, what they have 
striven after and attained, and why they have attained it. 
(2.) A people is not merely the mass of individuals now 
living ; it will not suffice to observe contemporary facts. (3.) 
All the peoi)les of whom we can learn anything must be 
studied and compared from the economic point of view, 
especially the ancient peoples, whose development lies before 
us in its totality. (4.) We must not simpl}^ praise or blame 
economic institutions ; few of them have been salutary or 
detrimental to all peoples and at all stages of culture ; rather 
it is a principal task of science to show how and why, out 
of what was once reasonable and beneficent, the unwise and 
inexpedient has often gradually arisen." Of tlie principles 
enunciated in this paraphrase of Roscher's words a portion 

^ This phraseology was probably borrowed from the controversy on 
the method of jurisprudence between Thibaut on the one hand and 
Savigny and Hugo on the other. 



202 POLITICAL ECONOMY. 

of the third alone seems open to objection ; the economy of 
ancient peoples is not a more important subject of study than 
that of the moderns ; indeed, the question of the relative im- 
portance of the two is one that ought not to be raised. For 
the essential condition of all sound sociological inquiry is the 
comparative consideration of the entire series of the most 
complete evolution known to history — that, namely, of the 
group of nations forming what is known as the Occidental 
Commonwealth, or, more briefly, "the West." The reasons 
for choosing this social series, and for provisionally restricting 
our studies almost altogether to it. have been stated with 
unanswerable force by Comte in tlie Fhilosophie Positive, 
Greece and Eome are, indeed, elements in the series ; but it 
is the development as a whole, not any special portions of it, 
that Sociology must keep in view in order to determine the 
laws of the movement,— just as, in the study of biological 
evolution, no one stage of an organism can be considered as of 
preponderating importance, the entire succession of changes 
being the object of research. Of Roscher's further eminent 
services we shall speak hereafter ; he is now mentioned only 
in relation to the origin of the new school. 

In 1848 Bruno Hildebrand published the first volume of a 
work, which, though he lived for many years after (d. 1878), 
he never continued, entitled Die Nationalokonomie der Gegen- 
loart und Zukunft, Hildebrand was a thinker of a really 
high order ; it may be doubted whether amongst German 
economists there has been any endowed with a more profound 
and searching intellect. He is quite free from the wordiness 
and obscurity which too often characterise German writers, 
and traces broad outlines with a sure and powerful hand. His 
book contains a masterly criticism of the economic systems 
which preceded, or belonged to, his time, including those of 
Smith, Muller, List, and the socialists. But it is interesting 
to us at present mainly from the general position he takes up, 
and his conception of the real nature of political economy. 
The object of his work, he tells us, is to open a way in the 



THE HISTORICAL SCHOOL. 203 

economic domain to a tliorougli historical direction and method, 
and to transform the science into a doctrine of the laws of the 
economic development of nations. It is interesting to observe 
tliat the type ^vhich he sets before him in his proposed reform 
of political economy is not that of historical jurisprudence, 
hut of the science of language as it has been reconstructed in 
the present century, a selection which indicates the compara- 
tive method as the one which he considered appropriate. In 
both sciences we have the presence of an ordered variation in 
time, and the consequent substitution of the relative for the 
absolute. 

In 1853 appeared the work of Karl Knies, entitled Die 
Politisclie Oekonomie vom Standpunkte der geschichtlicJien 
Methode. This is an elaborate exposition and defence of the 
historical method in its application to economic science, and is 
the most systematic and complete manifesto of the new school, 
at least on the logical side. /'The fundamental propositions 
are that the economic constitution of society at any epoch 
on the one hand, and on the other the contemporary theoretic 
conception of economic science, are results of a definite his- 
torical development; that they are both in vital connection 
with the whole social organism of the period, having grown 
up along with it and under the same conditions of time, place, 
and nationality ; that the economic system must therefore be 
regarded as passing through a series of phases correlative with 
the successive stages of civilisation, and can at no point of 
this movement be considered to have attained an entirely 
definitive form ; that no more the present than any previous 
economic organisation of society is to be regarded as absolutely 
good and right, but only as a phase in a continuous historical 
evolution ; and that in like manner the now prevalent economic 
doctrine is not to be viewed as complete and final, but only as 
representing a certain stage in the unfolding or progressive 
manifestation of the truth.' 

The theme of the book is handled with, perhaps, an undue 
degree of expansion and detail. The author exhibits much 



204 POLITICAL ECONOMY. 

sagacity as well as learning, and criticises effectively the errors, 
inconsistencies, and exaggerations of his predecessors. [But ia 
characterising and vindicating the historical method he has 
added nothing to Comte. ' A second edition of his treatise was 
published in 1883, and in this he makes the singular confes- 
sion that, when he wrote in 1852, the Philosophie Positive^ 
the six volumes of which had appeared from 1830 to 1842, 
was entirely unknown to him and, he adds, probably to all 
German economists. This is not to the credit of their open- 
mindedness or literary vigilance, if we remember that Mill 
was already in correspondence with Comte in 1841, and that 
his eulogistic notice of him in the Logic appeared in 1843. 
When, however, Knies at a later period examined Comte's 
work, he was, he tells us, surprised at finding in it so many 
anticipations of, or *' parallelisms " with, his own conclusions. 
And well he might; for all that is really valuable in his 
methodology is to be found in Comte, applied on a larger 
scale, and designed with the broad and commanding power 
which marks the dii majores of philosophy. 

There are two points which seem to be open to criticism in 
the position taken by some German economists of the historical 
school. 

I. Knies and some other writers, in maintaining the principle 
of relativity in economic theory, appear not to preserve the due 
balance in one particular. The two forms of absolutism in 
doctrine, cosmopolitanism and what Knies calls perpetualism, 
he seems to place on exactly the same footing; in other words, 
he considers the error of overlooking varieties of local circum- 
stances and nationality to be quite as serious as that of neglect- 
ing differences in the stage of historical development. But 
this is certainly not so. In every branch of Sociology the 
latter is much the graver error, vitiating radically, wherever 
it is found, the whole of our investigations. If we ignore the 
fact, or mistake the direction, of the social movement, we are 
wrong in the most fundamental point of all — a point, too, 
which is involved in every question. But the variations de- 



THE HISTORICAL SCHOOL. 205 

pending on difference of race, as affecting bodily and mental 
endowment, or on diversity of external situation, are secondary 
phenomena only; they must be postponed in studying tlie 
general theory of social development, and taken into account 
afterwards when we come to examine the modifications in tlie 
character of the development arising out of peculiar conditions. 
And, though the physical nature of a territory is a condition 
which is likely to operate wuth special force on economic phe- 
nomena, it is rather on the technical forms and comparative 
extension of the several branches of industry tliat it will act 
than on the social conduct of each branch, or the co-ordination 
and relative action of all, which latter are the proper subjects 
of the inquiries of the economist. 

2. Some members of the school appear, in their anxiety to 
assert the relativity of the science, to fall into the error of 
denying economic laws altogether; they are at least unwilling 
to speak of "natural laws" in relation to the economic world. 
From a too exclusive consideration of law in the inorganic 
sphere, they regard this phraseology as binding them to the 
notion of fixity and of an invariable system of practical 
economy. But, if we turn oiir attention rather to the organic 
sciences, w^hich are more kindred to the social, we shall see 
that the term ** natural law" carries with it no such implica- 
tion. As we have more than once indicated, an essential part 
of the idea of life is that of development, in other words, of 
"ordered change." And that such a development takes place 
in the constitution and working of society in all its elements 
is a fact which cannot be doubted, and which these writers 
themselves emphatically assert. That there exist between the 
several social elements such relations as make the change of 
one element involve or determine the change of another is 
equally plain ; and why the name of natural laws should be 
denied to such constant relations of coexistence and succession 
it is not easy to see. These laws, being universal, admit of 
the construction of an abstract theory of economic develop- 
ment ; whilst a part of the German historical school tends to 



2o6 POLITICAL ECONOMY. 

substitute for such a theory a mere description of different 
national economies, introducing prematurely — as we have 
pointed out — the action of special territorial or ethnological 
conditions, instead of reserving this as the ground of later 
modifications, in concrete cases, of the primary general laws 
deduced from a study of the common human evolution. 

• To the three writers above named, Roscher, Hildebrond, 
and Knies, the foundation of the German historical school of 
political economy belongs. } It does not appear that Eoscher 
in his own subsequent labours has been much under the in- 
fluence of tlie metliod which he has in so many places admir- 
ably characterised. In his System der Volkswirthschaft (vol, i., 
Grundlagen der National okonomie. 1854 ; i6th ed.^ 1883 : Eng. 
transl. by J. J. Lalor, 1878; vol. ii., N. 0, des Ackerhaues, i860; 
loth ed., 1882 ; vol. iii., N. 0. des Handels und GewerhfleisseSy 
4th ed., 1883) the dogmatic and the historical matter are rather 
juxtaposed than vitally combined. It is true that he has most 
usefully applied his vast learning to special historical studies, 
in relation especially to the progress of the science itself. His 
treatise Ueher das Verhdltniss der Nationaldkonor)iie zum das- 
sischen Altertliume (1849), ^^^^ -^^^^ Gesclii elite der Englisclien 
Volkswirtliscliaftslelire (Leipsic, 185 1-2), and, above all, that 
marvellous monument of erudition and industry, his Geschichte 
der National- Oehonomih in Deidschland (1874), to which he 
is said to have devoted fifteen years of study, are among the 
most valuable extant works of this kind, though the last by 
its accumulation of detail is unfitted for general study out- 
side of Germany itself. Several interesting and useful mono- 
graphs are collected in his Ansichten der Vollcswirthschaft vom 
geschichtlichen Standpunkte (3d ed., 1878). His systematic 
treatise, too, above referred to, abounds in historical notices 
of the rise and development of the several doctrines of the 
science. But it cannot be alleged that he has done much 
towards the transformation of political economy which his 
earliest labours seemed to announce ; and Cossa appears to 
be right in saying tliat his dogmatic work has not effected 



THE HISTORICAL SCHOOL. 207 

any substantial modification of tlie principles of Hermann 
and Ran. 

The historical method has exhibited its essential features ' 
more fully in the hands of the younger generation of scientific 
economists in Germany, amongst whom may be reckoned 
Lujo Brentano, Adolf Held, Erwin Nasse, Gustav Schmoller, 
H. Rosier, Albert Schaffle, Hans von Scheel, Gustav Schon- 
berg, and Adolf Wagner. Besides the general principle of an 
historical treatment of the science, the leading ideas which 
have been most strongly insisted on by this school are the 
following. I. The necessity of accentuating the moral element 
in economic study. This consideration has been urged with 
special emphasis by Schmoller in his Grundfragen (1875) and 
by Schaffle in his I) as geselUcJiaftliche Sydem der mensclilichen 
Wirthschaft (3d ed., 1873). G. Kries (d. 1858) appears also 
to have handled the subject well in a review of J. S. Mill 
According to the most advanced organs of the school, three 
principles of organisation are at work in practical economy ; 
and, corresponding with these, there are three different systems 
or spheres of activity. The latter are (i) private economy; 
(2) the compulsory public economy ; (3) the '^ caritative " 
sphere. In the first alone personal interest predominates ; in 
the second the general interest of the society ; in the third the 
benevolent impulses. Even in the first, however, the action 
of private interest cannot be unlimited ; not to speak here of 
the intervention of the public power, the excesses and abuses 
of the fundamental principle in this department must be 
checked and controlled by an economic morality, which can 
never be left out of account in theory any more than in 
practical applications. In the third region above named, moral 
influences are of course supreme. 11. The close relation which 
necessarily exists between economics and jurisprudence. This 
has been brought out by L, von Stein and H. Rosier, but is 
most systematically established by Wagner — who is, without 
doubt, one of the most eminent of living German economists 
— especially in his Grundlegung^ now forming part of the 



2o8 POLITICAL ECONOMY. 

comprehensive Lehrhuch der politisclien Oelwnomie published 
by him and Professor Nasse jointly. The doctrine of the 
jus naturce, on which the physiocrats, as we have seen, reared 
their economic structure, has lost its hold on belief, and the 
old a priori and absolute conceptions of personal freedom and 
property have given way along with it. It is seen that the 
economic position of the individual, instead of depending 
merely on so-called natural rights or even on his natural 
powers, is conditioned by the contemporary juristic system, 
which is itself an historical product. The above-named con- 
ceptions, therefore, half economic half juristic, of freedom 
and property require a fresh examination. It is principally 
from this point of view that Wagner approaches economic 
studies. The point, as he says, on which all turns is the old 
question of the relation of the individual to the community. 
Whoever with the older juristic and political philosophy and 
national economy places the individual in the centre comes 
necessarily to the untenable results which, in the economic 
field, the physiocratic and Smithian school of free competition 
has set up. Wagner on the contrary investigates, before 
anything else, the conditions of the economic life of the com- 
munity, and, in subordination to this, determines the sphere 
of the economic freedom of the individual. III. A different 
conception of the functions of the State from that entertained 
by the school of Smith. The latter school has in general 
followed the view of Eousseau and Kant that the sole office of 
the state is the protection of the members of the community 
from violence and fraud. This doctrine, which was in harmony 
with those of the jus naturce and the social contract, was 
temporarily useful for the demolition of the old economic 
system with its complicated apparatus of fetters and restric- 
tions. But it could not stand against a rational historical 
criticism, and still less against the growing practical demands 
of modern civilisation. In fact, the abolition of the impolitic 
and discredited system of European Governments, by bringing 
to the surface the evils arising from unlimited competition, 



THE HISTORICAL SCHOOL. 209 

irresistibly demonstrated tlie necessity of public action accord- 
ing to new and more enlightened methods. ^The German 
historical school recognises the State as not merely an insti- 
tution for the maintenance of order, but as the organ of the 
nation for all ends which cannot be adequately effected by 
voluntary individual effort. Whenever social aims can be 
attained only or most advantageously through its action, that 
action is justified.^ The cases in which it can properly inter- 
fere must be determined separately on their own merits and 
in relation to tlie stage of national development. It ought 
certainly to promote intellectual and aesthetic culture. It 
ought to enforce provisions for public health and regulations 
for the proper conduct of production and transport. It ought 
to protect the weaker members of society, especially women, 
children, the aged, and the destitute, at least in the absence 
of family maintenance and guardianship. It ought to secure 
the labourer against the worst consequences of personal injury 
not due to his own negligence, to assist through legal recogni- 
tion and supervision the efforts of the working classes for joint 
no less than individual self-help, and to guarantee the safety 
of their earnings, when intrusted to its care. 

A special influence which has worked on this more recent 
group is that of theoretic socialism ; we shall see hereafter 
that socialism as a party organisation has also afiected their 
practical politics. With such writers as St. Simon, Fourier, 
and Proudhon, Lassalle, Marx, Engels, Mario, and Eodbertus 
(who, notwithstanding a recent denial, seems rightly described 
as a socialist) we do not deal in the present treatise ; but we 
must recognise them as having powerfully stimulated the 
younger German economists (in the strict sense of this last 
word). They have even modified the scientific conclusions 
of the latter, especially through criticism of the so-called 
orthodox system. SchafEe and Wagner may be especially 
named as having given a large space and a respectful attention 

^ It will in each case be necessary to examine whether the action can 
best be taken by the central, or by the local, government. 

O 



2IO POLITICAL ECONOMY. 

to their arguments. In particular, tlic important consiideration, 
to which we have already referred, that the economic position 
of the individual depends on the existing legal S3'stem, and 
notably on the existing organisation of property, Avas first 
insisted on by the socialists. They had also pointed out that 
the present institutions of society in relation to property, in- 
lieritance, contract, and the like, are (to use Lassalle's phrase) 
" historical categories which have changed, and are subject 
to further change," wdiilst in the orthodox economy they are 
generally assumed as a fixed order of things on the basis of 
which the individual creates his own position. J. S. Mill, 
as we have seen, called attention to the fact of the distribution 
of wealth depending, unlike its production, not on natural 
laws alone, but on the ordinances of society, but it is some 
of the German economists of the younger historical school 
who have most strongly emphasised this view. To rectify 
and complete the conception, however, we must bear in mind 
that those ordinances themselves are not arbitrarily change- 
able, but are conditioned by the stage of general social 
development. 

In economic politics these \vriters have taken up a position 
between the German free-trade (or, as it is sometimes with 
questionable propriety called, the Manchester) party and the 
democratic socialists. The latter invoke the omnipotence of 
the State to transform radically and immediately the present 
economic constitution of society in the interest of the pro- 
letariate. The free-traders seek to minimise state action for 
any end except that of maintaining public order, and securing 
the safety and freedom of the individual. The members of 
the school of which we are now^ speaking, when intervening 
in the discussion of practical questions, have occupied an inter- 
mediate standpoint. They are opposed alike to social revolu- 
tion and to rigid laisser /aire. Whilst rejecting the socialistic 
programme, they call for the intervention of the State in 
accordance wath the theoretic principles already mentioned, 
for the purpose of mitigating the pressure of the modern 



THE HISTORICAL SCHOOL. 211 

iiKliistrial system on its weaker members, and extending in 
greater measure to the working classes the benefits of advanc- 
ing civilisation.' - Schaffle in his Capitalismus und Socialismus 
(1870 ; now absorbed into a larger work), Wagner in his Rede 
iiher die socude Frage (187 1), and Schonberg in his Arheit- 
sdmter: eine Aufgahe des deutsclien Reichs (1871) advocated 
this policy in relation to the question of the labourer. I'hese 
expressions of opinion, with which most of the German 
professors of political economy sympathised, were violently 
assailed by the organs of the free-trade party, who found in 
them " a new form of socialism." Out of this arose a lively 
controversy ; and the necessity of a closer union and a prac- 
tical political organisation being felt amongst the partisans of 
the new direction, a congress was held at Eisenach in October 
1872, for the consideration of "the social question." It was 
attended by almost all the professors of economic science in 
the German universities, by representatives of the several 
political parties, by leaders of the working men, and by some 
of the large capitalists. At this meeting the principles above 
explained were formulated. Those who adopted them obtained 
from their opponents the appellation of " Katheder-Socialisten," 
or " socialists of the (professorial) chair/' a nickname invented 
by H. E. Oppenheim, and which those to whom it was applied 
were not unwilling to accept. Since 1873 this group has been 
united in the " Verein flir Socialpolitik," in which, as the con- 
troversy became mitigated, free-traders also have taken part. 
Within the Yerein a division has shown itself. The left wing 
has favoured a systematic gradual modification of the law of 
property in such a direction as would tend to the fulfilment 
of the socialistic aspirations, so far as these are legitimate, 
whilst the majority advocate reform through state action on the 
basis of existing jural institutions. Schaffle goes so far as to 
maintain that the present " capitalistic" regime will be replaced 
by a socialistic organisation; but, like J. S. Mill, he adjourns 
this change to a more or less remote future, and expects it 
as the result of a natural development, or process of '^social 



212 POLITICAL ECONOMY. 

selection ; " ^ he repudiates any immediate or violent revolution, 
and rejects any system of life wliich would set up ** abstract 
equality " against the claims of individual service and merit. 

The further the investigations of the German historical 
school have been carried, in the several lines of inquiry it has 
opened, the more clearly it has come to light that the one 
thing needful is not merely a reform of political economy, but 
its fusion in a complete science of society. This is the view 
long since insisted on by Auguste Comte ; and its justness 
is daily becoming more apparent. The best economists of 
Germany now tend strongly in this direction. Schaffle, who 
is largely under the influence of Comte and Herbert Spencer, 
has actually attempted the enterprise of widening economic 
into social studies. In his most important work, which had 
been prepared by previous publications, Bau und Lthen des 
socialen Korpers (1875-78 ; new ed., i88ij, he proposes to 
give a comprehensive plan of an anatomy, physiology, and 
psychology of human society. He considers social processes 
as analogous to those of organic bodies ; and, sound and 
suggestive as the idea of this analogy, already used by Comtt., 
undoubtedly is, he carries it, perhaps, to an undue degree of 
detail and elaboration. The same conception is adopted by 
P. von Lilienfeld in his Gedanken uber die Socialwissenschaft 
der Zulmnft (1873-79). ^ tendency to the fusion of economic 
science in Sociology is also found in Adolph Ssunters Soziallehre 
(1875) — though the economic aspect of society is there speci- 
ally studied — and in Schmoller's treatise Ueher einige Grund- 
fragen des Reclits und der Volkswirthscliaftslehre (1875) ; and 
the necessity of such a transformation is energetically asserted 
by H. von Scheel in the preface to his German version (1879) 
of an English tract ^ On the 'present Position and Pros;pects of 
Political Economij. 

1 This sliould be remembered by readers of M. Leroy-Beaulieu's work 
on Collectivism (1884), in which he treats Schaffle as the principal theo- 
retic representative of that form of socialism. 

^ By the present writer ; being an Address to the Section of Economic 
Science and Statistics of the British Association at its meeting in Dublin 
in 1878. 



THE HISTORICAL SCHOOL. 213 

The name "Eealistic," which has sometimes been given 
to the historical school, especially in its more recent form, 
appears to be injudiciously chosen. It is intended to mark 
the contrast with the ^'abstract" complexion of the orthodox 
economics. But the error of these economics lies, not in the 
use, but in the abuse of abstraction. All science implies 
abstraction, seeking, as it does, for unity in variety ; the 
question in every branch is as to the right constitution of the 
abstract theory in relation to the concrete facts. 'Nov is the 
new school quite correctly distinguished as " inductive." 
Deduction doubtless unduly preponderates in the investiga- 
tions of the older economists ; but it must be remembered 
that it is a legitimate process, when it sets out, not from a 
priori assumptions, but from proved generalisations. And 
the appropriate method of economics, as of all sociology, is 
not so much induction as the specialised form of induction 
known as comparison, especially the comparative study of 
** social series " (to use Mill's phrase), which is properly desig- 
nated as the "historical" method. If the denominations here 
criticised were allowed to prevail, there would be a danger 
of the school assuming an unscientific character. It might 
occupy itself too exclusively with statistical inquiry, and 
forget in the detailed examination of particular provinces of 
economic life the necessity of large philosophic ideas and of a 
systematic co-ordination of principles. So long as economics 
remain a separate branch of study, and until they are absorbed 
into Sociology, the thinkers who follow the new direction will 
do wisely in reta..Jng their original designation of the his- 
torical school. 

The members of this and the other German schools have pro- 
duced many valuable works besides those which there has been 
occasion to mention above. Ample notices of their contribu- 
tions to the several brandies of the science (including its appli- 
cations) will be found dispersed through Wagner and IS'asse's 
Lehrhiich and the comprehensive HandhucJi edited by Schon- 
berg. The following list, which does not pretend to approach to 



214 POLITICAL ECONOMY. 

completeness, is priven for tlie purpose of directing the student 
to a certain number of books Avhich ought not to be over- 
looked in the study of the subjects to which they respectively 
refer : — 

Knies, Die Eisenhahnen und ihre WirJcunjen (1853), Der Tdegraph 
(1857), Geld und Credit (1873-76-79) ; Rosier, Zur Kritik der Lehre vom 
Arbeitslohn, (1861); SchmoUer, Zur Geschiclite der deutschen Kleinge- 
icerbe im 19 Jahrh. (1870) ; Schaffle, Theorie der ausschliessenden Absatz- 
verhdltnisse [iSGy), Quintessenz des Sociallsmus (6th ed., 1878), Grundsdtze 
der Sieuerpolitik ( 1 880 ) ; Nasse, Mittelalterliche Feldgemeinschaft in Ewjla n c?, 
(1869) ; Brentaiio, On the History and Development of Gilds, prefixed to 
Toulmin Smith's English Gilds (1870), Die Arheitergilden der Gegemvart 
(1871-72), Das Arbeitsverhdltniss gemdss deni heutijcn R cht (1877), Die 
A rheitsver sicker ung gemdss der heutigen Wirthschfiftsordnung (1879), 
Der Arheitsversicherungszwang (1881) ; Held (born 1 844, accidentally 
drowned in the Lake of Thnn, 1880), Die Einkomniensteuer (1872), Die 
dentsche Arbeiterpresse der Gegemvart (1873), Sozialismus, Sozialdemok- 
raie und Sozialpolitik (1878), Grnndriss fUr Vorlesu7igen Uber National- 
okonomie (2d ed., 1878) ; Zioei Bilcher zur socvden Geschiclite Englands 
(posthumously published, 1881) ; Von Scheel (born 1839), Die Thorie 
der socialen Frage (1871). Unscre social-politischen Parteien (1878). To 
these may be added L. von Stein, Die VtrwaUungslelire (1876-79), Lehr- 
hucli der Finanzivissenschaft (4th ed., 1878). E. Duhring is the ablest 
of the few German followers of Carey ; we have already mentioned (Bibl. 
Note) his History of the Science. To the Russian-German school 
belongs the work c»f T. von Bernhardi, which is written from the histori- 
cal point of view, Vcrsuch einer Kritik der Griinde welche fur grosses und 
hltines Grundeigenthum angefUhrt wrden 1848. The free-trade school of 
Germany is recognised as having rendered great practical services in that 
country, especially by its systematic warfare against antiquated privileges 
and restrictions. Cobden has furnished the model of its political action, 
whilst, on the side of theory, it is founded chiefly on Say and Bastiat. 
The members of this school whose names have been most frequently 
heard by the English public are those of J. Prince Smith (d. 1 874), who 
may be regarded as having been its head ; H. von Treitschke, author of 
Der Socialismus und seine Gonner, 1875 (directed against the Katheder- 
S<.>cialisten) ; V. Bohmert, who has advocated the participation of work- 
men in profits (Die Gewinnhetheiligung, 1878); A. Emminghaus, author 
of Das Armenwesen in Europdischen Staaten, 1870, part of which has 
been translated in E. B. Eastwick's Poor Relief in Different Parts of 
Europe^ 1873 ; and J. H. Sch'iltze-Delitzsch, well known as the founder of 
the German popular banks, and a strenuous supporter of the syst^^m of 
" co-operation." The socialist writers, as has been already mentioned, are 



THE HISTORICAL SCHOOL. 215 

not included in the present historical survey, nor do we in genert*! notico 
writings of the economists (properly so called) having relation to the 
history of socialism or the controversy with it.-^ 

The niovement which created the new school in Germany, 
with the developments which have grown out of it, have 
without doubt given to that country at the present time the 
primacy in economic studies. German influence has been felt in 
the modification of opinion in other countries — most strongly, 
perhaps, in Italy, and least so in France. In England it has 
been steadily making way, though retarded by the insular 
indifference to the currents of foreign thought which has 
eminently marked our dominant school. Alongside of the 
influence thus exerted, a general distaste for the " orthodox " 
system has been spontaneously ^growing, partly from a sus- 
picion that its method was unsound, partly from a profound 
dissatisfaction w^ith the practice it inspired, and the detected 
hollowness of the policy of mere laisser /aire. Hence every- 
where a mode of thinking and a species of research have shown 
themselves, and come into favour, which are in harmony with 
the systematic conc(^ptions of the historical economists. Thus 
a dualism has established itself in the economic world, a 
younger school advancing towards predominance, whilst tlie 
old school still defends its position, though its adherents tend 
more and more to modify their attitude and to admit the 
value of the new lights. 

Italy. 

It is to be regretted that but little is known in England 
and America of the writings of the recent Italian economists. 

^ The most important economic work which has appeared in Germany 
since the above paragraph was written is undoubtedly the System der 
Nationaloehonomle of G. Cohn, of which vol. i. (1885) only has yet been 
published. A movement of reaction in favour of the older school ia 
represented by 0. Menger {Untcr such ting m uber die Methode der Social- 
wissenschafien, 1 883), H. Dietzel [Beitrdge zur Methode der Wirths hafts* 
wissenchaft, 1884), and E. Sax (Das Wesen und die Aafyahe der National' 
0€ko)iomie, 1884, and Grundleyung der theoretischenStaatsnirthschaft, iSSj), 



2i6 POLITICAL ECONOMY. 

Luigi Cossa s Guida, wliich was translated at the suggestion 
of Jevons,^ has given us some notion of the character and 
importance of their labours. The urgency of questions of 
finance in Italy since its political renascence has turned their 
researches for the most part into practical channels, and they 
have produced numerous monographs on statistical and ad- 
niinistrative questions. But they have also dealt ably with 
the general doctrines of the science. Cossa pronounces Angelo 
Messedaglia (b. 1820), professor at Padua, to be the foremost 
of contemporary Italian economists ; he has written on public 
loans (1850) and on population (1858), and is regarded as 
a master of the subjects of money and credit. His pupil 
Fedele Lampertico (b. 1833) ^^ author of many writings, 
among which the most systematic and complete is his Economia 
dei popoli e degli stati (i 874-1 884). Marco Minghetti (1818- 
1886), distinguished as a minister, was author, besides other 
writings^ of Economia puhblica e le sue attinenze colla morale 
e col diritto (1859). Luigi Luzzati, also known as an able 
administrator, has by several publications souglit to prepare 
the way for reforms. The Sicilians Yito Cusumano and 
Giuseppe Eicca Salerno have produced excellent works : — the 
former on the history of political economy in the Middle Ages 
(1876), and the economic schools of Germany in their rela- 
tion to the social question (1875); ^^^® latter on the theories 
of capital, wages, and public loans (1877-8-9). G. Toniolo, 
E. Nazzani, and A. Loria have also ably discussed the theories 
of rent and profit, as well as some of the most important 
practical questions of the day. Cossa, to whom we are in- 
debted for most of these particulars, is himself author of 
several works which have established for him a high reputa- 
tion, as his Scienza delle Fiaanze (1875 ; 4th ed., 1887), and 
his Primi Elementi di Economia Politica (1875; 8th ed., 
1888), which latter has been translated into several European 
languages. 

^ Guide to ike Study of Political Economy, 1880. See also the Biblio. 
graphical matter in his Primi Elementi di E, P., vol. i , 8th ed., 1888. 



THE HISTORICAL SCHOOL. 217 

Of greater interest than such an imperfect catalogue of 
writers is the fact of the appearance in Italy of the economic 
dualism to which we have referred as characterising our time. 
There also the two schools — tlie old or so-called orthodox and 
the new or historical — with their respective modified forms, 
are found face to face. Cossa tells us that the instructors 
of the younger economists in northern Italy were publicly 
denounced in 1874 as Germanists, socialists, and corrupters 
of the Italian youth. In reply to this charge Luzzati, Lam- 
pertico, and Scialoja convoked in Milan the first congress 
of economists (1875) with the object of proclaiming their 
resistance to the idea which was sought to be imposed on 
them " that the science was born and died with Adam Smith 
and his commentators." M. Emile de Laveleye's interesting 
Lettres d'ltalie (1878-79) throw light on the state of eco- 
nomic studies in that country in still more recent years. Min- 
ghetti, presiding at the banquet at which M. de Laveleye 
w^as entertained by his Italian brethren, spoke of the "two 
tendencies '' which had manifested themselves, and implied his 
own inclination to the new viev/s. Carlo Ferraris, a pupil of 
AVagner, follows the same direction. Formal expositions and 
defences of the historical method have been produced by 
Schiattarella {Del metodo in Economia Socia^e, 1875) and 
Cognetti de Martiis {Delle attinenze tra VEconomia Sociale 
e la Stoi'ia, 1865). A large measure of acceptance has also 
been given to the historical method in learned and judicious 
monographs by Ricca Salerno (see especially his essay Del 
metodo in Econ. Pol.^ 1878). Luzzati and Eorti for some time 
edited a periodical, the Giornale degli Economistl^ which was 
the organ of the new school, but which, when Cossa wrote, 
had ceased to appear. Cossa himself, whilst refusing his 
adhesion to this school on the ground that it reduces political 
economy to a mere narrative of facts, — an observation which, 
we must be permitted to say, betrays an entire misconception 
of its true principles, — admits that it has been most useful 
in several ways, and especially as having given the signal for 



2i8 POLITICAL ECONOxMY. 

a salutary, though, as he thinks, an excessive, reaction against 
the doctrinaire exaggerations of the older theorists. 



Fkance. 

In France the historical school has not made so strong an 
impression, — partly, no doubt, because the extreme doctrines 
of the Ricardian system never obtained much hold there. It 
was by his recognition of its freedom from those exaggerations 
that Jevons was led to declara that ^' the truth is with the 
French school," whilst he pronounced our English economists 
to have been ''living in a fool's paradise." National preju- 
dice may also have contributed to the result referred to, the 
ordinary Frenchman being at present disposed to ask whether 
any good thing can come out of Germany. But, as we have 
shown, the philosophic doctrines on which the whole proceed- 
ing of the historical school is founded were first enunciated 
by a great French thinker, to whose splendid services most 
of his fellow-countrymen are singularly dead. Perhaps 
another determining cause is to be looked for in official 
influences, which in France, by their action on the higlier 
education, impede the free movement of independent con- 
viction, as was seen notably in the temporary eclat they gave 
on the wider philosophic stage to the shallow eclecticism of 
Cousin. The tendency to the historical point of view has 
appeared in France, as elsewhere ; but it has shown itself 
not so much in modifying general doctrine as in leading to 
a more careful study of the economic opinions and institutions 
of the past. 

Much useful work has been done by Frenchmen (with 
whom Belgians may here be associated) in the history of 
political economy, regarded either as a body of theory or as 
a system — or series of systems — of policy. Blanqui's history 
(1837-38) is not, indeed, entitled to a very high rank, but it 
was serviceable as a first general draught. That of Yilleneuve- 
Bargemout (1839) was also interesting and useful, as present* 



THE HISTORICAL SCHOOL. 219 

ing the Catholic view of the development and tendencies oi 
the science. C. Perin's Les doctrines economiques depuls un 
Steele (1880) is written from the same point of view. A 
number of valuable monographs on particular statesmen or 
thinkers has also been produced by Frenchmen, — as, for 
example, that of A. Batbie on Turgot (Turgot Philoso]:)lie, 
£conomiste, et Administrateur, 1861); of A. IS'eymarck on 
the same statesman {Turgot et ses doctrines, 1885); of Pierre 
Clement on Colbert (Hisfoire de Colbert et de son Administra- 
tion, 2d ed., 1875); of H. Baudi'illart on Bodin (/. Bodin et 
son Temps ; Tableau des Theories politiques et des Idees econo- 
miques au 16^ Steele, 1853); of L^once de Lavergne on the 
physiocrats (Les iJconomistes Fran^ais du 18^ siecle, 1870). 
Works, too. of real importance have been produced on parti- 
cular aspects of the industrial development, as those of L. de 
Lavergne on the rural economy of France (1857), and of 
England, Scotland, and Ireland (1854). The treatise of M. 
de Laveleye, De la Propriete et de ses formes primitives (1874 ; 
Eng. trans, by G. K. Marriott, 1878), is specially worthy of 
notice, not merely for its array of facts respecting the early 
forms of property, but because it co-operates strongly with the 
tendency of the new school to regard each stage of economic 
life from the relative point of view, as resulting from an his- 
toric past, harmonising with the entire body of contemporary 
social conditions, and bearing in its bosom \\\q germs of a 
future, predetermined in its essential character, though modifi- 
able in its secondary dispositions. 

M. de Laveleye has done much to call attention to the 
general principles of the historical school, acting in this way 
most usefully as an interpreter between Germany and Prance. 
But he appears in his most recent manifesto {Les Lois natu- 
relies et Vohjet de TJ^conomie Politique^ 1SS3) ^^ separate him- 
self from the best members of that school, and to fall into 
positive error, when he refuses to economics the character of 
a true science (or department of a science) as distinguished 
from an art, and denies the existence of economic laws o? 



220 POLITICAL ECONOMY. 

tendencies independent of individual wills. Such a denial 
seems to involve that of social laws generally, which is a sin- 
gularly retrograde attitude for a thinker of our time to take 
up, and one which cannot be excused since the appearance of 
the Philoso'pMe Positive. The use of the metaphysical phrase 
*' necessary laws" obscures the question; it suffices to speak 
of laws which do in fact prevail. M. de Laveleye relies on 
morals as supplying a parallel case, where we deal, not with 
natural laws, but with '* imperative prescriptions," as if these 
prescriptions did not imply, as their basis, observed coexist- 
ences and sequences, and as if there were no such thing as 
moral evolution. He seems to be as far from the right point 
of view in one direction as his opponents of the old school in 
another. All that his arguments have really any tendency to 
prove is the proposition, undoubtedly a true one, that economic 
facts cannot be explained by a theory which leaves out of 
account the other social aspects, and therefore that our studies 
and expositions of economic phenomena must be kept in close 
relation with the conclusions of the larger science of society. 

We cannot do more than notice in a general way some of 
the expository treatises of which there has been an almost 
continuous series from the time of Say downwards, or indeed 
from the date of Germain Garnier's Ahrege des Principes de 
V^conomie Politique (1796). That of Destutt de Tracy forms 
a portion of his J^lements d^Ideologie (1823). Droz brought 
out especially the relations of economics to morals and of 
wealth to human happiness {£co7iomie Politique, 1829). Pelle- 
grino Eossi, — an Italian, formed, however, as an economist by 
studies in Switzerland, professing the science in Paris, and 
writing in French {Cours d'^conomie Politique, 1838-54), — 
gave in classic form an exposition of the doctrines of Say, 
Malthus, and Eicardo. Michel Chevalier (1806-1879), speci- 
ally known in England by his tract, translated by Cobden, on 
the fall in the value of gold {La Bainse d'Oi% 1858), gives in 
his Cours d'^conomie Politique (1845-50) particularly valu- 
able matter on the most recent industrial phenomena, and 



THE HISTORICAL SCHOOL. 221 

on money and the production of the precious metals. Henri 
Eaudrillart, author of Les Eapj^orts de la Morale et de 
ViJconomie Politique (i860 ; 2d ed., 1883), ^^^^ o^ Histoire du 
Luxe (1878), published in 1857 a Manuel d'jSconomie Politique 
(3d ed., 1872), which Cossa calls an " admirable compendium." 
Joseph Gamier {Traite de Vi^conomie Politique, i860 ; 8th ed., 
1880) in some respects follows Dunoyer. J. G. Courcelle- 
Seneuil, the translator of J. S. Mill, whom Prof. F. A. Walker 
calls *' perhaps the ablest economist writing in the French 
language since J. B. Say,'' besides a Traite tlieorique et 
pratique des operations de Banqae and Tlieorie des Enterprises 
Industrielles (1856), wrote a Traite d^J&conomie Politique 
(1858-59; 2d ed., 1867), which is held in much esteem. 
Finally, the Genevese, Antoine Elise Cherbuliez (d. 1869), 
was author of what Cossa pronounces to be the best treatise 
on the science in the French language (^Precis de la Science 
J^conomique, 1862). L. Walras, in Elements d^Economie 
Politique pure (1874-77), and Tlieorie Matheviatique de la 
Richesse Sociale (1883), has followed the example of Cournot 
n attempting a mathematical treatment of the subject. 

England. 

Sacrificing the strict chronological order of the history of 
economics to deeper considerations, we have already spoken of 
Cairnes, describing him as the last original English writer who 
w^as an adherent of the old school pure and simple. Eoth in 
method and doctrine he was essentially Kicardian ; though 
professing and really feeling profound respect for Mill, he 
was disposed to go behind him and attach himself rather to 
their common master. Mr. Sidgwick is doubtless right in be- 
lieving that his Leading Principles did much to shake " the 
unique prestige which Mill's exposition had enjoyed for nearly 
half a generation," and in this, as in some other ways, Cairnes 
may have been a dissolving force, and tended towards radical 
change ; but, if he exercised this influence, he did so uncon- 



222 POLITICAL ECONOMY. 

sciously and involuntarily. Many influences had, however, 
for some time been silently sapping the foundations of the old 
system. The students of Comte had seen that its method was 
an erroneous one. The elevated moral teaching of Carlyle 
had disgusted the best minds with the low maxims of the 
Manchester school. Euskin had not merely protested against 
the egoistic spirit of the prevalent doctrine, but had pointed 
to some of its real weaknesses as a scientific theory.^ It began 
to be felt, and even its warmest partisans sometimes admitted, 
that it had done all the work, mainly a destructive one, of 
which it was capable. Cairnes himself declared that, whilst 
most educated people believed it doomed to sterility for tlie 
future, some energetic minds thought it likely to be a positive 
obstruction in the way of useful reform. Miss Martineau, 
who had in earlier life been a thorough Eicardian, came to 
think that political economy, as it had been elaborated ])y her 
contemporaries, was, strictly speaking, no science at all, and 
must undergo such essential change that future generations 
would owe little to it beyond the establishment of the exist- 
ence of general laws in one department of human affairs.^ The 
instinctive repugnance of the working classes had continued, 
in spite of the efforts of their superiors to recommend its 
lessons to them — efforts which were perhaps not unfrequently 
dictated rather by class interest than by public spirit. All 
the symptoms boded impending change, but they were visible 
rather in general literature and in the atmosphere of social 
opinion than within the economic circle.^ But when it be- 
came known that a great movement had taken place, especially 
in Germany, on new and more hopeful lines, the English econo- 
mists themselves began to recognise the necessity of a reform 

1 The remarkable book Money and Morals^ by John Lalor, 1852, waa 
written partly under the influence of Carlyle. There is a good mono- 
graph entitled John Ruskin, Economist, by P. Geddes, 1884. 

2 See her Antohiography, 2d ed., vol. ii. p. 244. 

3 A vigorous attack on the received system was made by David Syme 
m his Outlines of an Industrial Science, 1876. 



THE HISTORICAL SCHOOL. 223 

and even to furtlier its advent. Tlie principal agencies of this 
kind, in marshalling the way to a renovation of the science, 
have been those of Bagehot, Leslie, and Jevoiis, — the first 
limiting the sphere of the dominant system, while seeking to 
conserve it within narrower bounds ; the second directly assail- 
ing it and setting np the new method as the rival and destined 
successor of the old ; and the third acknowledging the collapse 
of the hitherto reigning dynasty, proclaiming the necessity of 
an altered regime, and admitting the younger claimant as joint 
possessor in the future. Thus, in England too, the dualism 
which exists on the Continent has been established ; and there 
is reason to expect that here more speedily and decisively than 
in France or Italy the historical school will displace its an- 
tagonist. It is certainly in England next after Germany that 
the preaching of the new views has been most vigorously and 
effectively begun. 

AA^alter Bagehot (182 6- 1877) was author of an excellent 
work on the English money market and the circumstances 
which have determined its peculiar character {Lombard Street, 
1873 ; 7th ed , 1878), and of several monographs on particular 
monetary questions, which his practical experience, combined 
with his scientific habits of thought, eminently fitted him to 
handle. On the general principles of economics he wrote 
some highly important essays collected i\\ Economic Studies 
(edited by E. H. Hutton, 1880), the object of which was to 
show that the traditional system of political economy — the 
system of Eicardo and J. S. Mill — rested on certain funda- 
mental assumptions, which, instead of being universally true in 
fact, were only realised within very narrow limits of time and 
space. Instead of being applicable to ail states of society, 
it holds only in relation to those ''in which commerce has 
largely developed, and where it has taken the form of develop- 
ment, or something like the form, which it has taken in 
England." It is '^ ihe science of business such as business 
is in large and trading communities — an analysis of the great 
commerce by which England has become rich." But more 



224 POLITICAL ECONOMY. 

tlian this it is not; it will not explain the economic life of 
earlier times, nor even of other communities in onr own time ; 
and for the latter reason it has remained insular ; it has never 
been fully accepted in other countries as it has been at home. 
It is, in fact, a sort of ready reckoner, enabling ns to calculate 
roughly what will happen under given conditions in Lombard 
Street, on the Stock Exchange, and in the great markets of 
the world. It is a " convenient series of deductions from 
assumed axioms which are never quite true, which in many 
times and countries would be utterly untrue, but which are 
sufficiently near to the principal conditions of the modern '^ 
English " world to make it useful to consider them by 
themselves." 

Mill and Cairnes had already shown that the science they 
tanght was a hypothetic one, in the sense that it dealt not with 
real but with imaginary men — " economic men " who were 
conceived as simply " money-making animals." Eut Bagehot 
went further : he showed what those writers, though they 
may have indicated, had not clearly brought out,^ that the 
world in which these men were supposed to act is also ^*a 
very limited and peculiar world." ^Vhat marks off this 
special world, he tells ns, is the promptness of transfer of 
capital and labonr from one employment to another, as deter- 
mined by differences in the remuneration of those several 
employments — a promptness about the actual existence of 
which in the contemporary English world he fluctuates a good 
deal, but which on the whole he recognises as substantially 
realised. 

Bagehot described himself as ^Hhe last man of the ante- 
]\Iill period," having learned his economics from Ricardo ; 
and the latter writer he appears to have to the end greatly 
over-estimated. But he lived long enough to gain some know- 
ledge of the historical method, and with it he had " no quarrel, 
but rather much sympathy." *' Rightly conceived," he said, 

^ Jones, whose writings were apparently unknown to Bagehot, had, 
as we have seen, in some degree anticipated him in this exposition. 



THE HISTORICAL SCHOOL. 



225 



"it is no rival to the abstract method rightly conceived." 
We will not stop to criticise a second time the term *' abstract 
method " here applied to that of the old school, or to insist 
on the truth that all science is necessarily abstract, the only 
question that can arise being as to the just degree of abstraction, 
or, in general, as to the right constitution of the relation between 
the abstract and the concrete. It is more apposite to remark 
that Bagehot's view of the reconciliation of the two methods 
is quite different from that of most '^ orthodox " economists. 
They commonly treat the historical method with a sort of 
patronising toleration as affording useful exemplifications or 
illustrations of their theorems. But, according to him, the 
two methods are applicable in quite different fields. For what 
he calls the " abstract " method he reserves the narrow, but 
most immediately interesting, province of modern advanced 
industrial life, and hands over to the historical the economic 
phenomena of all the human past and all the rest of the 
human present. He himself exhibits much capacity for such 
historical research, and in particular has thrown real light 
on the less-noticed economic and social effects of the institu- 
tion of money, and on the creation of capital in the earlier 
stages of society. But his principal efficacy has been in 
reducing, by the considerations we have mentioned, still 
further than his predecessors had done, our conceptions of 
the work which the a ^priori method can do. He in fact 
dispelled the idea that it can ever supply the branch of general 
Sociology which deals with wealth. As to the relations of 
economics to the other sides of Sociology, he holds that the 
*• abstract " science rightly ignores them. It does not consider 
the differences of human wants, or the social results of their 
several gratifications, except so far as these affect the pro- 
duction of wealth. In its view ^' a pot of beer and a picture 
— a book of religion and a pack of cards — are equally worthy 
of regard." It therefore leaves the ground open for a science 
which will, on the one hand, study wealth as a social fact in 
all its successive forms and phases, and, on the other, will 

p 



226 POLITICAL ECONOMY. 

regard it in its true light as an instrument for the conservation 
and evolution — moral as well as material — of Imman societies. 
Though it will involve a slight digression, it is desirable 
here to notice a furtlier attenuation of the functions of the 
deductive mc^tliod, which is well pointed out in Mr. Sidgwick's 
recent remarkable work on political economy. He observes 
that, whilst J. S. Mill declares that tlie method a priori is the 
true method of the science, and that " it has been so under- 
stood and tauglit by all its most distinguished teacliers," he 
yet himself in the treatment of production followed an in- 
ductive method (or at least one essentially ilifferent from the 
deductive), obtaining his results by " merely analysing and 
systematising our common empirical knowdedge of the facts of 
industry." To explain this characteristic inconsistency, Mr. 
Sidgwick suggests that Mill, in making his general statement 
as to method, had in contemplation only the statics of distri- 
bution and exchange. And in this latter field Mr. Sidgwick 
holds that tlie a priori method, if it be pursued with caution, 
if the simplified premises be well devised and the conclusions 
*' modified by a rough conjectural allowance '' for the elements 
omitted in the premises, is not, for the case of a developed 
industrial society, '' essentially false or misleading." Its con- 
clusions are hypothetically valid, though "its utility as a 
means of interpreting and explaining concrete facts depends 
on its being used with as full a knowledge as possible of the 
results of observation and induction." We do not think this 
statement need be objected to, though we should prefer to 
regard deduction from hypothesis as a useful occasional logical 
artifice, and, as such, perfectly legitimate in this as in other 
fields of inquiry, rather than as the main form of method in 
any department of economics. Mr. Sidgwick, by his limita- 
tion of deduction in distributional questions to "a state of 
things taken as the type to which civilised society generally 
appioximates," seems to agree with Bagehot that for times 
and places which do not correspond to this type the historical 
method must be used — a method which, be it observed, doca 



THE HISTORICAL SCHOOL. 227 

not exclude, but positively implies, *^ reflective analysis" of 
the facts, and their interpretation from ** the motives of human 
agents " as well as from other determining conditions. In the 
dynamical study of wealth — of the changes in its distribution 
no less than its production — Mr. Sidgwick admits that the 
method a priori *^can occupy but a very subordinate place." 
AVe should say that here also, though to a less extent, as a logi- 
cal artifice it may sometimes be useful, though the hypotheses 
assumed ought not to be the same that are adapted to a mature 
industrial stage. But the essential organ must be the historical 
method, studying comparatively the different phases of social 
evolution. 

Connected with the theory of modern industry is one sub- 
ject which Bagehot treated, though only in an incidental way, 
much more satisfactorily than his predecessors, — namely, the 
function of the entrepreneur, who in Mill and Cairnes is 
scarcely recognised except as the owner of capital. It is quite 
singular how little, in the Leading Principles of the latter, 
his active co-operation is taken into account. Bagehot objects 
to the phrase ^' wages of superintendence,'^ commonly used to 
express his " reward," as suggesting altogether erroneous ideas 
of the nature of his work, and well describes the large and 
varied range of his activity and usefulness, and the rare com- 
bination of gifts and acquirements which go to make up the 
perfection of his equipment. It can scarcely be doubted that 
a foregone conclusion in favour of the system of (so-called) co- 
operation has sometimes led economists to keep these important 
considerations in the background. They have been brought 
into due prominence of late in the treatises of Profs. Marshall 
and F. A. Walker, who, however, have scarcely made clear, and 
certainly have not justified, the principle on which the amount 
of the remuneration of the entrepreneur is determined. 

We have seen that Jones had in his dogmatic teaching 
anticipated in some degree the attitude of the new school; 
important works had also been produced, notably by Thomas 
Tooke and William INewmarch {History of Prices, 1838-1857), 



228 POLITICAL ECONOMY. 

and by James E. Thorold Eogers {History of Agriculture and 
Prices in England^ 1866-82)/ on the course of English econo- 
mic history. Eut the first systematic statement by an English 
^Yriter of the j^bilosopliic foundation of the historical method, 
a.t5 the appropriate organ of economic research, is to be found 
in an essay by T. E. Cliffe Leslie (printed in the Dublin 
University periodical, Hermathena, 1876 ; since included in his 
Essays Moral and Political, 1S79). This essay was the most 
important publication on the logical aspect of economic science 
which had appeared since Mill's essay in his Unsettled Ques- 
tions ; though Cairnes had expanded and illustrated the vieAvs 
of Mill, he had really added little to their substance. Leslie 
takes up a position directly opposed to theirs. He criticises 
with much force and verve the principles and practice of the 
*' orthodox *' school. Those who are acquainted with what 
has been written on tliis subject by Knies and other Germans 
will appreciate the freshness and originality of Leslie's treat- 
ment. He points out the loose and vague character of the 
principle to which the classical economists profess to trace 
back all the phenomena with which they deal — namely, the 
*' desire of wealth." This phrase really stands for a variety of 
wants, desires, and sentiments, widely different in their nature 
and economic effects, and undergoing important changes (as, 
indeed, the component elements of wealth itself also do) in 
the several successive stages of the social movement. The 
truth is that there are many different economic motors, altru- 
istic as well as egoistic ; and they cannot all be lumped to- 
gether by such a coarse generalisation. The a priori and 
purely deductive method cannot yield an explanation of the 
causes which regulate either the nature or the amount of 
wealth, nor of the varieties of distribution in different social 
systems, as, for example, in those of France and England. 
" The whole economy of every nation is the result of a long 
evolution in which there has been both continuity and change, 

1 Mr. Rogers has since continued this work, and has also published 
The First Nine Years of the Bank of England, 1887. 



THE HISTORICAL SCHOOL. 229 

and of which tlie economical side is only a particular aspect. 
And the laws of which it is the result must be sought in 
history and the general laws of society and social evolution." 
The intellectual, moral, legal, political, and economic sides 
of social progress are indissolubly connected. Thus, juridical 
facts relating to property, occupation, and trade, thrown up by 
the social movement, are also economic facts. And, more 
generally, " the economic condition of English " or any other 
** society at this day is the outcome of the entire movement 
which has evolved the political constitution, the structure of 
the family, the forms of religion, the learned professions, the 
arts and sciences, the state of agriculture, manufactures, and 
commerce." To understand existing economic relations we 
must trace their historical evolution ; and *' the philosophical 
method of political economy must be one which expounds that 
evolution." This essay was a distinct challenge addressed to 
the ideas of the old school on method, and, though its conclu- 
sions have been protested against, the arguments on which they 
are founded have never been answered. 

With respect to the dogmatic generalisations of the " ortho- 
dox " economists, Leslie thought some of them w^ere false, and 
all of them required careful limitation. Early in his career 
he had shown the hollowness of the wage-fund theory, though 
he was not the first to repudiate it.^ The doctrine of an 
average rate of wages and an average rate of profits he rejected 
except under the restrictions stated by Adam Smith, which 
imply a " simple and almost stationary condition " of the 
industrial world. He thought the glib assumption of an 
average rate of wages, as well as of a wage-fund, had done 
much harm " by hiding the real rates of w^ages, the real causes 
which govern them, and the real sources from which wages 
proceed." The facts, which he laboriously collected, he found 

^ That service was due to F. D. Longe {Refutation of the Wage- Fund 
Theory of Modern Political Economy, 1866). Leslie's treatment of the 
subject was contained in an article of Frasers Magazine for July 1868, 
reprinted as an appendix to his Land-Systems and Industrial Economy 
of Ireland, England^ and Continental Countries^ 187a 



230 POLITICAL ECONOMY. 

to be everywhere against the tlieory. In every country there 
is really " a great number of rates ; and the real problem is, 
What are the causes which produce these different rates?'* 
As to profits, he denies that there are any means of knowing 
the gains and prospects of all the investments of capital, and 
declares it to be a mere fiction that any capitalist surveys the 
whole field. Bagehot, as we saw, gave up the doctrine of a 
national level of wages and profits except in the peculiar case 
of an industrial society of the contemporary English type ; 
Leslie denies it even for such a society. With this doctrine, 
that of cost of production as determining price collapses, and 
the principle emerges that it is not cost of production, but 
demand and supply, on which domestic, no less than inter- 
national, values depend, — though this formula will require 
much interpretation before it can be used safely and with 
advantage. Thus Leslie extends to the whole of the national 
industry the partial negation of the older dogma introduced 
by Cairnes through the idea of non-competing groups. He 
does not, of course, dispute the real operation of cost of pro- 
duction on price in the limited area within which rates of 
profit and wages are determinate and known ; but he main- 
tains that its action on the large scale is too remote and un- 
certain to justify our treating it as regulator of price. Xow, 
if this be so, the entire edifice wliich Ricardo reared on the 
basis of the identity of cost of production and price, with its 
apparent but unreal simplicity, symmetry, and completeness, 
disappears ; and the ground is cleared for the new structure 
which must take its place. Leslie })redicts that, if political 
economy, under that name, does not bend itself to the task of 
r(^aring such a structure, the office will speedily be taken out 
of its hands by Sociology. 

Leslie was a successful student of several special economic 
subjects — of agricultural economy, of taxation, of the distribu- 
tion of the precious metals and the history of prices, and, as 
has been indicated, of the movements of wages. But it is 
in relation to the method and fundamental doctrines of the 



THE HISTORICAL SCHOOL. 231 

science that he did the most important, because tlie most 
opportune and needful work. And, though his course was 
closed too early for the interests of knowledge, and much of 
what he produced was merely occasional and fragmentary, his 
services will be found to have been greater than those of 
many who have left behind them more systematic, elaborate, 
and pretentious writings. 

One of the most original of recent English writers on Poli- 
tical Economy was W. Stanley Jevons (1835- 1882). The 
combination which he presented of a predilection and aptitude 
for exact statistical inquiry with sagacity and ingenuity in the 
interpretation of the results was such as might remind us of 
Petty. He tended strongly to bring economics into close re- 
lation with physical science. He made a marked impression 
on the public mind by his attempt to take stock of our re- 
sources in the article of coal. His idea of a relation between 
the recurrences of commercial crises and the period of the sun- 
spots gave evidence of a fertile and bold scientific imagination, 
though he cannot be said to have succeeded in establishing 
such a relation. He was author of an excellent treatise on 
Money and the Mechaniwi of Exchange (1875), ^^^^ ^^ various 
essays on currency and finance, which have been collected 
since his death, and contain vigorous discussions on subjects 
of this nature, as on bimetallism (with a decided tendency in 
favour of the single gold standard), and several valuable sug- 
gestions, as with respect to the most perfect system of currenc}^, 
domestic and international, and in particular the extension of 
the paper currency in England to smaller amounts. He pro- 
posed in other writings (collected in Methods of Social Reform, 
1883) a variety of measures, only partly economic in their 
character, directed especially to the elevation of the working 
classes, one of the most important being in relation to the 
conditions of the labour of married women in factories. This 
was one of several instances in which he repudiated the lalsser 
faire principle, which indeed, in his book on The State in 
Relation to Labour (1882), he refuted in the clearest and 



232 POLITICAL ECONOMY. 

most convincing way, without changing the position he had 
always maintained as an advocate of free trade. Towards the 
end of his career, which was prematurely terminated, he was 
more and more throwing off "the incubus of metaphysical 
ideas and expressions " whicli still impeded the recognition or 
confused the appreciation of social facts. He was, in his own 
words, ever more distinctly coming to the conclusion "that 
the only hope of attaining a true system of economics is to 
fling aside, once and for ever, the mazy and preposterous as- 
sumptions of the Eicardian school." With respect to method, 
though he declares it to be his aim to *' investigate inductively 
the intricate phenomena of trade and industry," his views had 
not perhaps assumed a definitive shape. The editor of some of 
his remains declines to undertake the determination of his 
exact position with respect to the historical school. The 
fullest indications we possess on that subject are to be found 
in a lecture of 1876, On the Future of Political Eronomy, He 
saw the importance and necessity in economics of historical 
investigation, a line of study which he himself was led by 
native bent to prosecute in some directions. But he scarcely 
apprehended the full meaning of the historical method, which 
he erroneously contrasted with the " theoretical," and appa- 
rently supposed to be concerned only with verifying and illus- 
trating certain abstract doctrines resting on independent bases. 
Hence, whilst he declared himself in favour of " thorough re- 
form and reconstruction," he sought to preserve the a priori 
mode of proceeding alongside of, and concurrently with, the 
historical. Political economy, in fact, he thought was breaking 
up and falling into several, probably into many, different 
branches of inquiry, prominent amongst which would be the 
'* theory" as it had descended from his best predecessors, 
especially those of the French school, whilst another would 
be the " historical study," as it was followed in England by 
Jones, Kogers, and others, and as it had been proclaimed in 
general principle by his contemporary Cliffe Leslie. This was 
one of those eclectic views which have no permanent validity, 



THE HISTORICAL SCHOOL. 233 

bnt are useful in facilitating a transition. The two methods 
Avill doubtless for a time coexist, but the historical will inevi- 
tably supplant its rival. What Jevons meant as the *' theory " 
lie wished to treat by mathematical methods (see his T ho or y of 
Political Economy^ 1871 ; 2d ed., 1879). This project had, as 
we have seen, been entertained and partially carried into effect 
by others before him, though he unduly multiplies the number 
of such earlier essays when, for example, he mentions Eicardo 
and J. S. Mill as writing mathematically because they some- 
times illustrated the meaning of their propositions by dealing 
with definite arithmetical quantities. Such illustrations, of 
which a specimen is supplied by Mill's treatment of the sub- 
ject of international trade, have really nothing to do wiih the 
use of mathematics as an instrument for economic research, 
or even for the co-ordination of economic truths. We have 
already, in speaking of Cournot, explained wdiy, as it seems 
to us, the application of mathematics in the higher sense to 
economics must necessarily fail, and we do not think that it 
succeeded in Jevons's hands. His conception of '' final utility '' 
is ingenious. But it is no more than a mode of presenting 
the notion of price in the case of commodities homogeneous in 
quality and admitting of increase by infinitesimal additions ; 
and the expectation of being able by means of it to subject 
economic doctrine to a mathematical method will be found 
illusory. He offers^ as the result of a hundred pages of 
mathematical reasoning what he calls a " curious conclusion," ^ 
in which " the keystone of the whole theory of exchange and 
of the principal problems of economics lies." This is the pro- 
position that "the ratio of exchange of any two commodities 
will be the reciprocal of the ratio of the final degrees of utility 
of the quantities of commodity available for consumption after 
the exchange is completed." Now as long as we remain in 
the region of the metaphysical entities termed utilities, this 
theorem is unverifiable and indeed unintelligible, because we 

^ Theory of Political Economy, 2d ed., p. 103. 
^ Fortnightly Review for November 1876, p. 617. 



234 POLITICAL ECONOMY. 

have no means of estimating quantitatively the mental impres- 
si on of final, or any other, utility. Eut when we translate it 
into the language of real life, measuring the ** utility" of any- 
thing to a man by what he will give for it, the proposition is 
at once seen to he a truism. What Jevons calls " final utility " 
being simply the price per unit of quantity, the theorem states 
that, in an act of exchange, the product of the quantity of the 
commodity given by its price per unit of quantity (estimated 
in a third article) is the same as the corresponding product for 
the commodity received — a truth so obvious as to require no 
application of the higher mathematics to discover it. If we 
cannot look for results more substantial than this, there is not 
much encouragement to pursue such researches, w^hich wnll in 
fact never be anything more than academic playthings, and 
which involve the very real evil of restoring the *' metaphysical 
ideas and expressions " previously discarded. The reputation 
of Jevons as an acute and vigorous thinker, inspired with 
noble popular sympathies, is sufficiently established. But the 
attempt to represent him, in spite of himself, as a follower and 
continuator of Eicardo, and as one of the principal authors of 
the development of economic theory (meaning by *' theory" 
the old a priori doctrine) can only lower him in estimation by 
]ilacing his services on grounds which will not bear criticism. 
His name will survive in connection, not with new theoretical 
constructions, but with his treatment of practical problems, 
his fresh and lively expositions, aud, as we have shown, his 
energetic tendency to a renovation of econt^mic method. 

Arnold Toynbee (185 2-1883), who left behind him a 
beautiful memory, filled as he was with the love of truth and 
an ardent and active zeal for the public good, was author of 
some fragmentary or unfinished pieces, which yet well deserve 
attention both for their intrinsic merit and as indicating the 
present drift of all the highest natures, especially amongst our 
younger men, in the treatment of economic questions.^ He 

1 See his Lectures on the Industrial Revolution in England^ with Memoii 
by the Master of Balliol, 1884 ; 2d ed., 1887. 



THE HISTORICAL SCHOOL. 235 

had a belief in the organising power of democracy which it 
is not easy to share, and some strange ideas due to youthful 
enthusiasm, such as, for example, that Mazzini is *' the true 
teacher of our age ; " and he fluctuates considerably in his 
opinion of the Kicardian political economy, in one place 
declaring it to be a detected " intellectual imposture," whilst 
elsewhere, apparently under the influence of Bagehot, ho 
speaks of it as having been in recent times " only corrected, 
re-stated, and put into the proper relation to the science of 
life," meaning apparently, by this last, general sociology. He 
saw, however, that our great help in the future must come, as 
much had already come, from the historical method, to which 
in his own researches he gave preponderant weiglit. Its true 
character, too, he understood better than many even of those 
who have commended it ; for he perceived that it not merely 
explains the action of special local or temporary conditions on 
economic phenomena, but seeks, by comparing the stages of 
social development in different countries and times, to "dis- 
cover laws of universal application." If, as we are told, there 
exists at Oxford a rising group of men who occupy a position 
in regard to economic thought substantially identical with that 
of Toynbee, the fact is one of good omen for the future of the 
science, 

America. 

For a long time, as we have already observed, little was done 
by America in the field of Economics. The most obvious 
explanation of this fact, which holds with respect to philo- 
sophical studies generally, is the absorption of the energies 
of the nation in practical pursuits. Further reasons are 
suggested in two instructive Essays — one by Professor Charles 
r. Dunbar in the North American RevieiL\ 1876, the other by 
Cliffe Leslie in the Fortnightly Review for October 1880. 

We have already referred to the Keport on Manufactures 
by Alexander Hamilton; and the memorial drawn up by 
Albert Gallatin (1832), and presented to Congress from the 



236 POLITICAL ECONOMY. 

Philadelphia Convention in favour of Tariff reform, deserves 
to be mentioned as an able statement of the arguments against 
protection. Three editions of the Wealth of Nations appeared 
in America, in 1789, 181 1, and 1818, and Ricardo's principal 
work was reprinted there in 1 8 1 9. The treatises of Daniel 
Ra3^mond (1820), Thomas Cooper (1826), Willard Phillips 
(1828), Francis Wayland (1837), and Henry Yethake (1838) 
made known the principles arrived at by Adam Smith and some 
of his successors. Rae, a Scotchman settled in Canada, pub- 
lished (1834) a book entitled New Principles of Political 
Economy^ which has been highly praised by J. S. Mill (bk. i. 
chap. 1 1), especially for its treatment of the causes which deter- 
mine the accumulation of capital. /The principal works which 
afterwards appeared down to the time of the Civil War were 
Francis Bo wen's Pr'inciples of Political Economy^ 1856, after- 
wards entitled American Political Economy, 1870 ; John Bas- 
com's Political Economy, 1859 ; and Stephen Colwell's Ways 
and Means of Payment, 1859. In the period including and 
following the war appeared A masa Walker's Science of Wealth, 
1866; i8th ed., 1883, and A. L. Terry^s Elements of Political 
Economy, 1866. A. Walker and Perry are free-traders ; Perry 
is a disciple of Bastiat. Of Carey we have already spoken at 
some length ; his American followers are E. Peshine Smith 
(A Manual of Political Economy, 1853), William Elder 
{Questions of the Day, 187 1), and Eobert E. Thompson 
{Social Science, 1875). (The name of no American economist 
stands higher than that of General Francis A. Walker (son 
of Amasa Walker), author of special works on the Wages 
Question (1876) and on Money (1878), as well as of an 
excellent general treatise on Political Economy (1883 ; 2d ed. 
1887).] The principal works on American economic history 
are those of A. S. Belles, entitled Industrial History of the 
United States (1878), and Financial History of the United 
States, 1774-1885, published in 1879 ^^^ later years. 

The deeper and more comprehensive study of the subject 
which has of late years prevailed in America, added to 



THE HISTORICAL SCHOOL. 237 

influences from abroad, has given rise, there also, to a division 
of economists into two schools — an old and a new — similar 
to those which we have found confronting each otlier else- 
where. A meeting was held at Saratoga in September 1885, 
at which a society was founded, called the American Eco- 
nomic Association. The object of this movement Avas to 
oppose the idea that the field of economic research was 
closed, and to promote a larger and more fruitful study of 
economic questions. The same spirit has led to the estab- 
lishment of the Quarterly Journal of Economics, published 
at Boston for Harvard University, which promises to do 
excellent work. The first article in this Journal is by 
C. F. Dunbar, whose review of a Century of American Poli- 
tical Economy we have already noticed ; and in this article 
he sets out, in the interest of conciliation, the tendencies 
of the two schools. 

This division of opinion has been manifested in a strikm- 
way by a discussion on the method and fundamental princi- 
ples of Economics, which was conducted in the pages of the 
periodical entitled Science, and has since been reproduced in 
a separate form {Science Economic Discussion, ^ew York, 
1886). In this controversy the views of the new school were 
expounded and advocated with great al)ility. The true nature 
of economic method, the relativity both of economic institu- 
tions and of economic thought, arising from their dependence 
on varying social conditions, the close connection of economic 
doctrine with contemporary jurisprudence, the necessity of 
keeping economics in harmony with social ethics, and the 
importance of a study of consumption (denied by J. S. Mill 
and others) were all exhibited with remarkable clearness and 
force.^ There is every reason to believe with Leslie that 

^ The contributors on the side of the new school were Dr. Edwin 
R. A. Seligman, Professor E. J. James, Professor Richard T. Ely, 
Henry 0. Adams, Richmond Mayo Smith, and Simon N. Patten. The 
representatives of the old school were Professor Simon Newcomb, 
F. W. Taussig, and Arthur T. Hadley. 



238 POLITICAL ECONOMY. 

America will take an active part both in bringing to light 
the economic problems of the future and in working out 
their solution. 



Contemporary English Economists, 

It is no part of our plan to pass judgment on the works of 
contemporary English authors, — a judgment which could not 
in general be final, and which would be subject to the imputa- 
tion of bias in a greater degree than estimates of living writers 
in foreign countries. But, for the information of the student, 
some opinions may be expressed which scarcely any competent 
person would dispute. The best brief exposition of political 
economy, substantially in accordance with Mill's treatise, is to 
be found in Fawcett's Manual (6th ed., 1884). But those who 
admit in part the claims of the new school will prefer Mr. and 
Mrs. Marshall's Economics of Industry (2d ed., 1881). Better, 
in some respects, than either is the Pulitlcal Economy of 
the American writer, Francis A. Walker, to which we have 
already referred. Other meritorious works are J. E. T Eogers's 
Manual of Political Economy, 1870; John Macdonell's Sur- 
vey of Political Economy, 187 1 ; and John L. Shad well's 
System of Political Economy, 1877. Professor W. E. Hear 11 's 
Plutology (1864) contains one of the ablest extant treatments? 
of the subject of production. Mr. Goschen's is the best work 
on the foreign exchanges (loth ed., 1879). Mr. Macleod, 
though his general economic scheme has met with no accept- 
ance, is recognised as supplying much that is useful on the sub- 
ject of banking. Professor Eogers's Six Centuries of Work and 
Wages (1884) is the most trutftworthy book on the economic 
history of England during the period with which he deals. 
W. Cunningliam's Growth of English Industry and Commerce 
(1882) is instructive on the mercantile system. Dr. W. 
Neilson Hancock has shown in a multitude of papers a most 
extensive and accurate knowledge of the social economy of 
Ireland 



THE HISTORICAL SCHOOL. 239 

We cannot here overlook a work like that of Mr. Sidgwick 
(1883), to which we have already referred on a special point. 
It is impossible not to respect and admire the conscientious 
and penetrating criticism which he applies to the a priori 
system of economics in its most mature form. But it is open 
to question whether the task was wisely undertaken. It 
cannot be permanently our business to go on amending and 
limiting the Eicardian doctrines, and asking by what special 
interpretations of phrases or additional qualifications they may 
still be admitted as having a certain value. The time for a 
new construction has arrived ; and it is to this, or at least to 
the study of its conditions, that competent thinkers with the 
due scientific preparation should now devote themselves. It 
is to be feared that Mr. Sidgwick's treatise, instead of, as 
he hopes, " eliminating unnecessary controversy," will tend to 
revive the steriles contestations and oiseuses disputes de mots, 
which Comte censured in the earlier economists. It is in- 
teresting to observe that the part of the work which is, and 
has been recognised as, the most valuable is that in which, 
shaking off the fictions of the old school, he examines inde- 
pendently by the light of observation and analysis the question 
of the industrial action of Governments. 



CHAPTER VII 
CONCLUSION. 

Let us briefly consider in conclusion, by the light of the 
preceding historical survey, what appear to be the steps in 
the direction of a renovation of economic science which are 
now at once practicable and urgent. 

I. Economic investigation has hitherto fallen for the most 
part into the hands of lawyers and men of letters, not into 
those of a genuinely scientific class. Nor have its cultivators 
in general had that sound preparation in the sciences of 
inorganic and vital nature M'hich is necessary whether as 
supplying bases of doctrine or as furnishing lessons of method. 
Their education has usually been of a metaphysical kind. 
Hence political economy has retained much of the form and 
spirit which belonged to it in the seventeenth and eighteenth 
centuries, instead of advancing with the times, and assuming 
a truly positive character. It is homogeneous with the school 
logic, with the abstract unhisturical jurisprudence, with the 
a priori ethics and politics, and other similar antiquated sys- 
tems of thought ; and it will be found that those who insist 
most strongly on the maintenance of its traditional character 
have derived their habitual mental pabulum from those regions 
of obsolete speculation. We can thus understand the attitude 
of true men of science towards this branch of study, which 
they regard with ill-disguised contempt, and to whose pro- 
fessors they either refuse or very reluctantly concede a place 
in theii brotherhood. 



CONCLUSION. 241 

The radical vice of this unscientific character of political 
economy seems to lie in the too individual and subjective 
aspect under which it has been treated. Wealth having been 
conceived as what satisfies desires, the definitely determiuable 
qualities possessed by some objects of supplying physical 
energy, and improving the physiological constitution, are left 
out of account. Everything is gauged by the standard of sub- 
jective notions and desires. All desiies are viewed as equally 
legitimate, and all that satisfies our desires as equally wealth. 
Value being regarded as the result of a purely mental appre- 
ciation, the social value of things in the sense of their objec- 
tive utility, which is often scientifically measurable, is passed 
over, and ratio of exchange is exclusively considered. Tiie 
truth is, that at the bottom of all economic investigation 
must lie the idea of the destination of wealth for the mainte- 
nance and evolution of a society. And, if we overlook tbi?, 
our economics will become a play of logic or a manual for 
the market, rather than a contribution to social science ; 
whilst wearing an air of completeness, they will be in truth 
one-sided and superficial. Economic science is something 
far larger than the Catallactics to which some have wished 
to reduce it. A special merit of the physiocrats seems to 
have lain in their vague perception of .the close relation of 
their study to that of external nature ; and, so far, we must 
recur to their point of view, basing our economics on physics 
and biology as developed in our own time.-^ Further, the 
science must be cleared of all the theologico-metaphysical 
elements or tendencies which still encumber and deform it. 
Teleology and optimism on the one hand, and the jargon of 
''natural liberty" and "indefeasible rights" on the other, 
must be finally abandoned. 

Kor can we assume as universal premises, from which 
economic truths can be deductively derived, the convenient 

^ This aspect of the subject has been ably treated in papers contributed 
to the Proceedings of the Koval Society of Edinburgh on several occabiona 
during and since 188 1 by Mr. P. Geddes, well known as a biologist. 

Q 



142 POLITICAL ECONOMY. 

formulas which have been habitually em])loyed, such as that 
all men desire wealth and dislike exertion. These vague 
propositions, wliich profess to anticipate and supersede social 
experience, and which necessarily introduce the absolute where 
relativity should reign, must be laid aside. The laws of 
wealth (to reverse a phrase of Buckle's) must be inferred from 
the facts of wealth, not from the pustulate of human selfish- 
ness. We must bend ourselves to a serious direct study of 
the way in which society has actually addressed itself and now 
addresses itself to its OAvn conservation and evolution through 
the supply of its material wants. What organs it has developed 
for this purpose, how they operate, how they are affected by 
the medium in which they act and by the coexistent organs 
directed to other ends, how in their turn they react on those 
latter, how they and their functions are progressively modi- 
fied in process of time — these problems, whether statical or 
dynamical, are all questions of fact, as capable of being studied 
through observation and history as the n:iture and progress 
of human language or religion, or any other group of social 
phenomena. Such study will of course require a contiuued 
" reflective analysis " of the results of observation ; and, whilst 
eliminating all premature assumptions, we shall use ascertained 
truths respecting human nature as guides in the inquiry and 
aids towards the interpretation of facts. And the employment 
of deliberately instituted hypotheses will be legitimate, but 
only as an occasional logical artifice. 

II. Economics must be constantly regarded as forming only 
one department of the larger science of Sociology, in vital 
connection with its other departments, and wdtli the moral syn- 
thesis which is the crown of the whole intellectual system. 
We have already sufficiently explained the philosophical 
grounds for the conclusion that the economic phenomena of 
society cannot be isolated, except provisionally, from the rest, — 
that, in fact, all the primary social elements should be habi- 
tually regarded with respect to their mutual dependence and 
reciprocal actions. Especially must we keep in view the high 



CONCLUSION. 243 

moral issues to which the economic movement is suhservient, 
and in the absence of which it could never in any great degree 
attract the interest or fix the attention either of eminent 
thinkers or of right-minded men. The individual point of 
view will have to be subordinated to the social ; each agent 
will have to be regarded as an organ of the society to which 
he belongs and of the larger society of the race. The con- 
sideration of interests, as George Eliot has well said, must 
give place to that of functions. The old doctrine of right, 
which lay at the basis of the system of " natural liberty," has 
done its temporary work ; a doctrine of duty will have to be 
substituted, fixing on positive grounds the nature of the social 
co-operation of each class and each member of the community, 
and the rules which must regulate its just and beneficial 
exercise. 

Turning now from the question of the theoretic constitu- 
tion of economics, and viewing the science with respect to its 
influence on public policy, we need not at the present day 
waste words in repudiating the idea that "nongovernment" 
in the economic sphere is the normal order of things. The 
laisser faire doctrine, coming down to us from the system of 
natural liberty, was long the great watchword of economic 
orthodoxy. It had a special acceptance and persistence in 
England in consequence of the political struggle for the 
repeal of the corn laws, which made economic discussion in 
this country turn almost altogether on free trade— a state of 
things which was continued by the effort to procure a modifi- 
cation of the protective policy of foreign nations. But it has 
now for some time lost the sacrosanct character with which 
it was formerly invested. This is a result not so much of 
scientific thought as of the pressure of practical needs — a cause 
which has modified the successive forms of economic opinion 
more than theorists are willing to acknowledge. Social exi- 
gencies will force the hands of statesmen, whatever their 
attachment to abstract formulas ; and politicians have practi- 
cally turned their backs on laisser faire. The State has with 



244 POLITICAL ECONOMY. 

excellent effect proceeded a considerable way in the direction 
of controlling, for ends of social equity or public utility, the 
operations of individual interest. The economists themselves 
have for the most part been converted on the question ; 
amongst theorists Mr. Herbert Spencer finds himself almost 
a vox clamant Is in deserto in protesting against what he 
calls the '' new slavery " of Governmental interference. He 
will protest in vain, so far as he seeks to rehabilitate the 
old absolute doctrine of the economic passivity of the State. 
But it is certainly possible that even by virtue of the 
force of the reaction against that doctrine there may be an 
excessive or precipitate tendency in the opposite direction. 
With the course of production or exchange considered in 
itself there will probably be in England little disposition 
to meddle. But the dangers and inconveniences which arise 
from the unsettled condition of the world of labour will 
doubtless from time to time here, as elsewhere, prompt to 
premature attempts at regulation. Apart, however, from the 
removal of evils which threaten the public peace, and from 
temporary palliations to ease off social pressure, the right 
policy of the State in this sphere will for the present be one 
of abstention. It is indeed certain that industrial society 
will not permanently remain without a s^^stematic organisa- 
tion. The mere conflict of private interests will never pro- 
duce a well-ordered commonwealth of labour. Freiheit ist 
keine Losung. Freedom is for society, as for the individual, 
the necessary condition precedent of the solution of practical 
problems, both as allowing natural forces to develop themselves 
and as exhibiting their spontaneous tendencies ; but it is not 
in itself the solution. AVhilst, however, an organisation of 
the industrial world may with certainty be expected to arise 
in process of time, it would be a great error to attempt to 
improvise one. We are now in a period of transition. Our 
ruling powers have still an equivocal character ; they are not 
in real harmony with industrial life, and are in all respects 
imperfectly imbued with the modern spirit. Besides, the 



CONCLUSION. 245 

conditions of the new order are not yet sufficiently understood. 
The institutions of the future must be founded on sentiments 
and habits, and these must be the slow growth of thought 
and experience. The solution, indeed, must be at all times 
largely a moral one ; it is the spiritual rather than the tem- 
poral power that is the natural agency for redressing or 
mitigating most of the evils associated with industrial life.^ 
In fact, if there is a tendency — and we may admit that such 
a tendency is real or imminent — to push the State towards an 
extension of the normal limits of its action for the maintenance 
of social equity, this is doubtless in some measure due to the 
fact that the growing dissidence on religious questions in the 
most advanced communities has weakened the authority of 
the Churches, and deprived their influence of social universality. 
What is now most urgent is not legislative interference on 
any large scale with the industrial relations, but the formation, 
in both the higher and lower regions of the industrial world, 
of profound convictions as to social duties, and some more 
effective mode than at present exists of diffusing, maintaining, 
and applying those convictions. This is a subject into which 
we cannot enter here. But it may at least be said that the 
only parties in contemporary public life which seem rightly 
to conceive or adequately to appreciate the necessities of the 
situation are those that aim, on the one hand, at the restora- 
tion of the old spiritual power, or, on the other, at the forma- 
tion of a new one. And this leads to the conclusion that 
there is one sort of Governmental interference which the 
advocates of laissei' /aire have not always discountenanced, 
and which yet, more than any other, tends to prevent the 
gradual and peaceful rise of a new industrial and social 

^ The neglect of this consideration, and the consequent undue exalta- 
tion of State action, which, though quite legitimate, is altogether in- 
sufficient, appears to be the principal danger to which the contemporary 
German school of economists is exposed. When Schmoller says, " The 
State is the grandest existing ethical institution for the education of the 
human race," he transfers to it the functions of the Church. The educa* 
tional action of the State must be, in the main, only indirect. 



246 POLITICAL ECONOMY. 

system, — namely, the interference with spiritual liberty by 
sotting up official types of philosophical doctrine, and impoeing 
restrictions on the expression and discussion of opinions. 

It will be seen that our principal conclusion respecting 
economic action harmonises with that relating to the theoretic 
study of economic phenomena. For, as we held that the 
latter could not be successfully pursued except as a duly 
subordinated branch of the wider science of Sociology, so in 
practical human affairs we believe that no partial synthesis is 
possible, but that an economic reorganisation of society implies 
a universal renovation, intellectual and moral no less than 
material. The industrial reformation for which western 
Europe groans and travails, and the advent of which is in- 
dicated by so many symptoms (though it will come only as 
the fruit of faithful and sustained effort), will be no isolated 
fact, but will form part of an applied art of life, modifying 
our whole environment, affecting our whole culture, and 
regulating our whole conduct — in a word, directing all our 
resources to the one great end of the eonserv^itioft and de» 
velopmeut of Humanity. 



INDEX 



Anderson, 126 
Aristotle, 15, 17, 22, 29 



Babbage, I*jl 

Bacon, 47 

Baden, Karl Friedrich von, 80 

Bagehot, 135, 223-227 

Bain, 149, 153 

Bandini, 70 

Banfield, 141 

Bastahle, 103, 161 

Bastiat, 167^ 170, 175-180 

Batbie, 219 

Baudrillart, 219, 221 

Beccaria, 71, 73, 74 

Belloni, 71 

Bentham, no, in 

BeriiLardi, 214 

Berkeley, 82 

Biauciiitd, 184 

Blanqui, xiv., 86, 218 

Boccardo, 183 

Bodin, 43, 44, 46 

Bohmert, von, 214 

Boisguillebert, 57, 59 

Bolles, 236 

Bonar, 122 

Bowen, 236 

Brassey, 160 

Brentano, 207, 214 

Broggia, 71 

Buchanan, 109, 129 

Buckle, 61, 90, 242 

Burke, 190 



Cairnes, 106, 123, 134, 154-162, 

178, 224 
Canjpanella, 46 
Campomanes, 78 
Canning, 146 
Cautillon, 60, 6x 



Carey, 171-175 

Carli, 21, 75 

Carlyle, 6j, 82 

Cato, 20, 22 

Chalmers, 121, 14X 

Charles V., 41 

Cherbuliez, 157, 221 

Chevalier, 220 

Child, 41, 48, 49, 52, 54, 67 

Cibrario, 183 

Cicero, 19, 20, 22 

Clement, 41, 219 

Coguetti de Martiis, 217 

Cohn, 215 

Coke, 52 

Colbert, 41, 42, 57, 60, 

Colmeiro, xv. 

Columella, 20, 21, 22 

Comte, Auguste, 196-200, and |)a«s*f« 

Comte, Charles, 177 

Condorcet, 112-114 

Copernicus, 46 

Coquelin et Guillaumin, xiT, 

Cossa, xiv., 216. 217 

Courcelle-Seneuil, 221 

Cournot, 180-182 

Cousin, 218 

Cromwell, 41 

Crumi)e, 141 

Culpeper, 48, 67 

Cunningham, 238 

Custodi, XV., 78 

Cusumano, 216 



Daire, xiv., 53 

D'Alembert. 66 
Dalrjmple, 92 
Darwin, 121 
Davanzati, 43 
Davenant, 49, 67 
De Quincey, 136 
Diderot, 56, 66, icy 



248 



INDEX. 



Dietzel, 215 

Digges, 48 

Droz, 220 

Duhiiiig, xiv., 22, 214 

Dunbar, 235, 237 

Dunoyer, 168-170 

Dupout de Nemours, 61, 66, 68, 86, 

105, 164 
Dutot, 60 



ElSENHART, xiv. ■ 
Eliot. George, 243 
Elizabeth, Queen, 41 
Ernerton, no 
Emminghaus, 214 



Fawcett, 147, 160, 238 
Feiielon, 60 
Ferguson, 92, 109 
Ferrarn, 183 
Ferraris, 217 
Filaiigieri, 75 
Fontetiay, 176, 177 
Forbonnais, 78 
Forti, 217 
Fortrey, 48, 52 
Foster, 161 
Franklin, j^^ 81, 115, 170 



Galiani, 46, 69, 72, 73, 75 

Garnier, Germain, 162, 220 

Gamier, Josei3h, 221 

Garve, 184 

Geddes, 222, 241 

Gee, 67 

Genovesi, 71, ^6^ 8l 

Gentz, 185, 190 

Gioja, 183 

Gladstone, 146 

Godwin, 112, 113 

Goethe, 81 

Goschen, 238 

Gosseu, 180 

Gournay, 60, 61, 66, 67 

Grimm, 70, 72 



Hamilton, 171 
Hancock, 238 
Hearn, 238 
Held, 13s, 207, 2T4 
Henry VHI., 41 
Hermann, 185, 186 
Hesiod, 11 
Hildebrand, 107, 202 
Hobbes, 51, 54, 61 



Huet, 'j'j 
Hufeland, 185 

igo, 201 

^me, S3, 70, 83, 85, 100, loi, lOSj 

:o7, 108, 115, 123, 128 



Hume, 



^-■-^■i ODt /-? ~0» ^., 
107, 108, 115, 123, 

Huskisson, 146 
Hutcheson, 6r 
Hutchinson, 141 



Intieri, 71, 72 



Jakob, von, 185 

Jevons, 60, 159, 180, 23X-a54 

Jones, 142-145, 224 

Jourdain, 29 

Jovellanos, 184 

Joyce, no 

Justi, 80 

Justinian, 21 



Kaimes, 92 

Kautz, xiv. 

Knies, loi, 203-205, 2x4 

Kraus, 185 
Kries, 207 



La Brutere, 65 

Lalor, 222 

Lampertico, 216, 217 

Lassalle, 210 

Lauderdale, no, in, 151 

Laughlin, 148 

Laveleye, De, 217, 219, 220 

Lavergne, 219 

Law, 60 

Lawson, 142 

Leibnitz, 53 

Leroy-Beaulieu, 178, 212 

Leslie, T. E. Cliffe, 61, 91, 90, m, 

149, 160, 175, 228-231 
Lilienfield, 212 
List, 171, 17s, 176, 191-194 
Livy, 19 

Locke, 53, 54, 82, 100 
Longe, 159, 229 
Longfield, 141 
Loria, 216 
Lotz, 185 
Liider, 185 
Luzzati, 216, 217 

Macaulay, 149 

M'Culloch, xiv., 105, 109, 126, 138, 
146 



INDEX. 



249 



Mncf!onell, 238 

]\[:icleod, 238 

]\ralestroifc, 43 

Malthus, 76, 78, 1 12-122, 125, 137, 

142 
Malynes, 48 

Marshall, Alfred, iii, 227, 238 
IMarshall, Mary P. , 238 
INIartineau, Harriet, 140, 222 
Melon, 60 
Menger, 215 
IMengotti, 41, 'j'j 
]\Iercier-Larivi^re, 68, 69 
IMerivale, 141 
Messedagiia, 216 
Meyer, xv. 

Mill, James, 117, 138, 149 
Mill, John Stuart, 146-154, and 

passim 
Millar, 92 
Minghetti, 216 
Mirabeau, 66-68, 76 
Misselden, 48 
Moser, 81 
Montaigne, 44 
Mont Chretien, 47 
Montesquieu, 60, 90-9?, inrx ii"; 
More, 44 
Morellet, 69, 70 
Morley, 150 
Miiller, 189-191 
Mun, 41, 46, 47 



Nasse, 207, 208, 2x4 
Nazzani, 216 
Nebenius, 185 
Neri, 21, 75 
Newmarch, 227 
Neyraarck, 219 
Nicholson, 106, no, 133 
North, 52, 53 



OpPENHEIM, 2X1 

Oresme, 36 
Ortes, 'JT, 81 



Pagnini, 21 
Paillottet, 176 
Paoletti, 76 
Pecchio, xiv., 71, 72 
Peel, 140 
Peril!, 219 
P^tty, 51, 53, 67 
Pitt, no 

Plato, 12-14, 22, 44 
Play fair, 109 



Pliny, 19, 20 
Pollexfen, 48 
Price, 115 
Prince-Smith, 214 
Pulteuey, no 



QUESNAY, 60, 61, 64-67, 70, 88, XOS 



Rae, 236 

Raleigh, 41, 49 

Ran, 185 

Raynal, 76 

Ricardo, 106, 122-137, 143, 145 

Ricca-Saleruo, 216, 217 

Ricci, 76 

Rinuccini, 72 

Robertson, "j^ 

Rogers, 109, 228, 238 

Romagnosi, 183 

Reseller, xiv., 201, 202, 206, and 

'passiin 
Rosier, 207, 214 
Rossi, 220 

Rousseau, 20, 56, 6x 
Ruskin, 222 



Samter, 212 

Sartorius, 185 

Savigny, 200, 201 

Say, J. B., 2, 163-165, 189 

Sax, 215 

Scaruffi, 43 

Schiiffle, 207, 209, 211, 212, 214 

Scheel, von, xiv., 207, 212, 214 

Schiattarella, 217 

Schlozer, 188 

Schmalz, 80 

Schmoller, 207, 214, 245 

Schonbei-g, xiv., 207, 211, 212 

Schulze-Delitzsch, 214 

Scialoja, 183 

Seneca, 20, 22 

Senior, 115, 116, 123, 130, 138-140 

Serra, 46 

Shad well, 238 

Sidgvvick, 146, 221, 226, 239 

Sismondi, 14, 135, 165-168 

Smith, Adam, 87-110, and passim 

Soden, 185 

Soiinenfels, 81 

Spencer, 117, 212 

Stafford, 45 

Stein, von, 207, 214 

Steuart, 81, 86, 87, 115 

Stewart, 105 

Stirling, 176 

B 



INDEX. 



Storch, i88, 189 
Syme, 222 



Tacitus, 19 

Taylor, 188 

Temple, 41, 49 

Terray, 69 

Thomas Aquinas, St., 29 

Thornton, W. T., 141, 159 

Thunen, von, 185, i86-i83 

Tooke, 145, 227 

Torrens, 140, 146 

Townsend, 115, 116 

Toyubee, 234 

Tracy, 220 

Treitschke, von, 214 

Tucker, 53, 86 

Turbolo, 43 

Turgot, 47, 65, 68, 70, 76, 87, 88, 105, 

no, 179 
Twiss, xiv. 



CSTARIZ, 78 

Varbo, 20 



Vasco, 75 
Vauban, 59 
Verri, 73, 74, 75 
Villeneuve-Bargemont, xir* 
Voltaire, 56, 59, 69, 73 



"Wagnee, 207-209, 211 

"Wakefield, 109, 141 

Walker, Amasa, 236 

Walker, Francis A., 106, 154, 169^ 

175, 227, 238 
Wallace, 113, 115 
Walras, 221 
West, 126, 131 
Whately, 141, 17a 
Whewell, 144 
Wolowski, 36 



Xenophon, 14 



YoujiG, IIS 

SiNCKE, 80 



rHB BVIK 



Works on political Economy 

Published by 

THE MACMILLAN COMPANY. 



BASTABLE (C. F.)— Public Finance. By C. F. Bastable. 
Professor of Political Economy at Trinity College, Dublin, 
8vo. $4.00. 

" Is likeb' to be a standard work. Its literary merit, its divisions and 
general scope, its comprehensiveness and avoidance of undue reg-ard to the 
controversies wliich are only of to-day, are but the secondary though essen- 
tial features of such a wor^. The higher qualities of a philosophical and 
practical method of treatment, and a transparent willingness to adjust the 
balance of evidence, are not wanting. It will be welcomed by students of 
political science everj'where, and not a few men more or less prominent ia 

Political or municipal life will find instruction and warning in its pages."— 
cotsman. 

BLUNTSCHLI (B. H.)--The Theory of the State. English 
Translation by R. Lodge, M. A. New and cheaper Edition. $3.00. 

BOHM-BAWERK— Capital and Interest, A Critical History 
of Economical Theory. By Eugen V. Bohm-Bawerk, Professor 
of Political Economy in the University of Innsbruck. Trans- 
lated, with a Preface and xinalysis, by William SxMAEt, Lecturer 
on Political Economy in Queen Margaret College, Glasgow. 
8vo. $4.00. 

'' We have read the volume with increasing interest from the first page 
to the last. Although it consists almost wholly of destructive criticism, it ia 
very necessary work. We recall nothing of the kind equal to it. Even 
though he may not have said the last word on the particular subject of his 
inquiry, he has said enough to fix his place in the front rank of the world's 
economists."— ^uemngr Post^ 

The Positive Theory of Capital. By Eugen V. Bohm- 
Bawerk, author of "Capital and Interest," etc. Translated 
by William Smart, Lecturer on Political Economy in Queen 
Margaret College, Glasgow. 8vo. $4.00. 

BOISSEVAIN — The Monetary Problem. By G. M. 

BoissEVAiN. Translated from the French by G. Townsend 
Warner, B.A., Fellow of Jesus College, Cambridge. 8vo. 
$1.00. 
This essay gained the prize of one hundred pounds offered by Sir H. 

Meysey Thompson in the interests of bi-metallism. The author is a 

banker at Amsterdam, having close relations with English commerce ; 

and his work is likely to have considerable interest for those who 

are investigating currency problems. 

BOOTH (CHARLES) — A Picture of Pauperism, with 
some remarks on the Endowment of Old Age. By Charles 
Booth. Crown 8vo. $1.25. 
Life and Labour of the People in London. Vol. L 
East Central and South London. 8vo. $1.50. 

CANNAN (E.) — Elementary Political Economy. 16mo. 
Stiff cover. 25 cents. 

COSSA (D. L.)— Guide to the Study of Political Economy. 

With Preface by W. Stanley Jevons, F.R.S. $2.60 



THE MACMILLAN COMPANY, NEW YORK. 



WORKS ON POLITICAL ECONOMY. 

FAWCETT. Works by tlie late Rt. Hon. Henry Fawcett, 
M.P., F.R.S. 

Manual of Political Economy. Sixth Edition. Revised, 
with a Chapter ** On State Socialism and Nationalization of the 
Land," and an Index. 12mo. $2.60. 

Free-Trade and Protection. An Enquiry into the Causes 
which have retarded the general adoption of Free Trade since 
its introduction into England. Sixth Edition. 12mo. $1.25. 

FAWCETT (Mrs.) — Political Economy for Beginners, 
with Questions. Sixth Edition. 18mo. 75 cents. 

GIFFEN (R.)— The Growth of Capital. By Robert Giffen. 

LL.D., F.S.S. Contents : Introduction— The Valuation of 1885 
— The Recent Progress — Distribution between England, Scot- 
land, and Ireland — Historical Retrospect — Accumulations of 
Capital in Foreign Countries — The Use of National Values. In 
1 vol. 8vo. $2.00. 

*'A very valuable contribution to a branch of economic and political 
knowledg-e which has hitherto been too much neglected.'"— Saturday Review. 

''Mr. Giffen's calculations cannot fail to be of the highest value to the 
politician and the economist."— iVational Observer. 

Essays in Finance. First Series. Fifth Edition, revised. 
8vo. $3.00. 

" It is impossible to read a page of these essays without being struck by 
the careful and conscientious character of the work displayed in them. We 
feel that we are dealing with a man who is giving us the fruit of honest 
labor. Every problem he attacks is fairly considered on every side."— TTie 
Times. 

Second Series. Third Edition. 8vo. $4.00. 

The Case Against Bimetallism. 12mo. $2.00. 

'' This book is timely, and the alignments pertinent and conclusive in 
their bearing on the present condition and drift of our national finances. 
. . . This able work should be studied by every legislator, or would-be 
legislator, throughout the United States. "—Boston Daily Advertiser. 

"Mr. Giff en is probably the highest living authority on questions rela- 
ting to currency and finance in general. What he has written on these 
subjects is in no respect academic but is the result of long familiarity with 
the practical questions of everyday business and financial methods. Taken 
throughout, the w^ork is a very valuable contribution to pending controver- 
sies on the financial questions involved."— ITie Chicago Tribune. 

GROSS — The Gild Merchant. A Contribution to British 
Municipal History. By Charles Gross, Professor of History, 
Harvard University. 2 vols. 8vo. $6.00. 

" These two volumes, in fine, with their apparatus of notes, bibliography, 
glossary and index form a monograph of the highest value, and exhibit the 
modern critical study of institutions at its best. Dr. Gross is eminently 
sober and cautious, he has no vagaries, his position is based on and defended 
by contemporary documents, and he demands the same vigorous proofs 
from others."— iV^cition. 

HORTON (S. Dana)— The Silver Pound and England's 
Monetary Policy since the Restoration. 8vo. $4.00. 

'' A work of original historical investigation, and considering the dryness 
of the subject to all but experts, written in a style remarkably interesting, 
and even picturesque, as well as vigorous." —Westminister Review. 

" The most authoritative book on the subject ever written."— GrapMc^ 



THE MACMILLAN COMPANY, NEW YORK. 



WORKS ON POLITICAL ECONOMY. 

HORTON.— Silver in Europe. 12mo. $1.50. 

" Mr. Horton's name is one that carries with it an amount of authority 
attaching" to but lew writers on monetary science."— St. Louis Times. 

HOWELL (G.)— The Conflicts of Capital and Labour. 

Historically and Economically Considered. Being a History and 
a Review of the Trade Unions of Great Britain, showing their 
Origin, Progress, Constitution and Objects in their Varied Poli- 
tical, Social, Economical and Industrial Aspects. By Geoege 
Howell, M.P., author of ''The Handy Book of the Labour 
Laws," etc. 12mo. $2.50. 

'' There is certainly a mass of information within its pages which no one 
wrestling with the labor problems of to-day can afford to ignore."— Christ- 
ian at Work. 

'' Written with thorough knowledge and striking candor."— CTiicagfo 

" Able and thorough . . . It will be useful and even necessary to all 
special students of the subject everywhere."— Critic. 

INGRAM (J. K.)— A History of Political Economy. With 
Preface by Prof. E. J. James, Ph.D. 12mo. $1.50. 

JEVONS.— Works by W. Stanley Jevons, LL.D., F.R.S. 

The Theory of Political Economy. Second Edition, with 
New Preface, etc. 8vo. $2.50. 

Investigations in Currency and Finance. Edited, with 
an Introduction, by H. S. Foxwell, M.A. Illustrated by 20 
Diagrams. 8vo. $7.50. 

The State in Relation to Labour. English Citizen Series, 
12ino. $1.00. 

KEYNES.— The Scope and Method of Political Economy. 

By John Neville Keynes, M.A. 12mo. $2.25. 

MARSHALL. — Works by Alfred Makshall, M.A., Professor 
of Political Economy in the University of Cambridge ; Fellow 
of St. John's College, Cambridge. 

Principles of Economics. Vol. I., Second Edition, Revised. 
8vo. $3.00. 

" To call it the greatest systematic work since Mill is to speak far within 
the truth, for the only other book to which it can be compared is ''The 
Wealth of Nations.'" It g*athers and sifts the store of economic knowledge, 
it reconstructs the whole body of doctrine on broader grounds, and in that 
new spirit, at once more liberal and more severely scientific, that has charac- 
terized every department of thought in these later years. . . . His com- 
prehensiveness and reasonableness broaden every issue he touches."— 
Annals of the American Academy, 

The Economics of Industry. $1.00. This book, which is 
practically an abridgment of Prof. Marshall's ''Principles of 
Economics," takes the place of a new edition of the " Economics 
of Industry," already well known as a leading elementary text- 
book of Political Economy. 



THE MACMILLAN COMPANY, NEW YORK. 



WORKS ON POLITICAL ECONOMY. 

PALGRAVE (R. H. Ic)— Dictionary of Political Economy. 

The object of the Dictionary is to give a statement of the posi- 
tion of Political Economy at the present time, together with 
such references to history, law and commerce as may be of use 
both in economic and in general reading. In paper covers, each 
part, $1.00. To be complete in about twelve parts, issued at 
intervals of about three months. JSotD ready. Parts I -VI. 
The first volume containing parts one to six, eight hundred pages, 
can also be supplied, bound in Irish linen. 8vo. --16.50, net.' 
Covers for this volume can also be obtained by those who have 
purchased the numoers as issued in paper covers and desire to 
have them bound, at 40 cents, net. 

PRICE (L. F. R.) — Industrial Peace. Its Advantages, 
Methods, and Difficulties. By L. F. R. Price. With a Preface 
by Prof, A. Marshall. 8vo. $1.50. 

RICARDO. — Letters of David Ricardo to Robert 
Malthus. 1810-1823. Edited by J. Bonar, M.A. 8vo. 

$2.75. 

On the Principles of Political Economy and Taxation. 

Edited by E. C. K. Gonner, M.A. $1.50. 

SIDGWICK.— Works by Henry Sidgwick, Professor of Moral 
Philosophy in the University of Cambridge. 

The Principles of Political Economy. Second Edition, 

Revised. 8vo. $4.00. 

The Elements of Politics. 8vo. $4.00. 

** . . . But aside from controverted matters, the book is of the high- 
est merit as containinp: a profound, exhaustive, and systematic examination 
of the whole field of politics." - Evening Post, New York. 

SMART.— An Introduction to the Theory of Value. On 

the lines of Menger, Wieser, and Eohm-Bawerk. Bv William 
Smart, M.A. 12mo. $1.25. 

SMITH (ADAM.)— The Wealth of Nations. An Inquiry 
into the Nature and Causes of. Edited by E. Belfort Bax. "Z 
vols. 12.00. 
A New Edition. With Notes by J. E. Thorold Rogers, M.A. 
2 vols. 8vo. $5.25. 

THOMPSON (H. M.)— The Theory of Wages and Its 
Application to the Eight Hours Question and Other 
Labour Problems. By Herbert M. Thompson, M.A. Cr. 

8vo. $1.00. 

WICKSTEED (P. H.)— The Alphabet of Economic 
Science. Part I. Globe 8vo. 60c. 



The Macmillan Company, Publishers, 

66 Fifth Avenue^ New York. 






:;/* #'"-^ '. 






., K ■* A 






.•^"^ c°^ 













' " n"^"- . , , , ^. * .0 H 






Deacidified using the Bookkeeper process. ' 
Neutralizing agent: Magnesium Oxide 
Treatment Date: Dec. 2010 

PreservationTechnologies 

A WORLD LEADER IN COLLECTIONS PRESERVATION 

1 1 1 Thomson Park Drive 
Cranberry Township, PA 16066 
(724)779-2111 



^ 












:^^\)^ 



N> 



I v\'' 



^ie^^. 






■,-^. 



-o^rf^^\,. 







,-0^ '^^ ^ 

^^. ^ 



O >- ^ 



^-^. .0^ 



.'^ 



.-^^ r' 






> -v. 






|^% %;^ :^^#iH 









<='z. V^ 



^^. 



^- 




•^^ •i' s 



^^^ v^^ 



-'-^sSW- 



■5^ 



I 



